 This is Mises Weekends with your host Jeff Dice. Ladies and gentlemen, welcome back. Once again, the Mises Weekends. Very pleased to be joined by Daniel Lacalle. He is a PhD economist. He's also a fund manager. Most recently, the author of a book entitled Escape from the Central Bank Trap, a book upon which he just presented a talk at various places in the United States, including the Heritage Foundation. And most importantly for us, he is president of Mises Hispano. The Spanish Mises Institute Organization. And he's here to talk to us to make better sense of this Catalonian independence referendum. So Daniel, thank you. So great to see you. Thank you so much, Jeff. Thanks for having me. Well, before we get into the details, I want to ask you something. We were talking offline. This is a productive part of Spain. This is not a backwater. We're talking about Barcelona, one of the great European capitals. If independence happened, this would be as big or bigger than Brexit. Would you agree? It is bigger than Brexit because Brexit is about the separation of the two entities that have long history being separate with completely independent institutions, separate central banks, separate currencies, separate institutions completely, that is not the case with Catalonia. And obviously it would create tremendous challenges. I would say that the biggest challenges the European Union has faced, much larger than Greece or other of the recent elections in France, for example. Well, the European Union seems to have a different stance toward this than it did in the former Yugoslavia, which is now broken up into six or seven countries. Do you think the EU is a hypocrite here? Do you think the EU is trying to save itself from embarrassment? What do you think the ramifications are there? Well, I think it's obviously much, it's very different. Yugoslavia was a country that was created artificially. It was a country that was created in modern history by a dictator, to be fairly honest, from entities that were separate before. In this case, it's different. The Catalonia has never been independent. Catalonia, even if you go back to the 1700s, was part of the kingdom of Aragon. So it has never existed as a separate entity. But in any case, after the Franco regime ended, in Spain, we had the vote for the constitution, the constitution that rules Spain right now. It was voted massively and supported massively as well in Catalonia. And the constitution in Spain, democratically voted, as I said, gives sovereignty of the country to all Spaniards. It's never been the union of different separate countries or different regions for political or military reasons. It's something that has been going on for many, many years. And that constitution gives the right to historic entities with strong culture like the Galiciaans, like the Basque, like the Andalusians, like the Catalans to express themselves very independently. We have a system in Spain called the autonomous communities that is equivalent to a federal state in which these autonomous communities, Catalonia is one of them, enjoy a tremendous amount of independence and autonomy. If you think about other autonomous regions in the European Union or in the OECD, even if you think of Canada, there is the level of autonomy that the regional governments have is unparalleled. So it's not that the European Union is being hypocritical here, is that it's a completely different scenario, isn't it? But so relative to Madrid, would you say Catalonia has more power than a US state has relative to Washington DC? Oh, absolutely, absolutely. If you think about what any of the United States has right now in terms of the laws that the parliament of the region can put forward, including, for example, some of what is called the Estatut, the rule of the Catalan part of Spain. It's much more independent than any of the states in the United States, for example. And more importantly, what it does get from being united with the rest of Spain is actually a benefit that none of the states in the United States gets, is that none of the regional communities go bankrupt. For example, if you have something like what happened in Detroit cannot happen in Spain, because you would immediately have the support from the central state. In terms of, for example, none of the states in the United States has its own police. Catalonia has its own police, as you have seen. It's funny that some of the pictures that have been shown by the separatists actually were the regional police behaving badly in 2013, not two days ago. They have their own police. They have their own collection of taxes at a regional level, which is about 42 billion a year in the case of Catalonia, for example. They have their own decisions in terms of infrastructure. They decide completely on how the budget is spent, given what is the amount of deficit that is shared between each of the others, according to what comes out of Brussels. And in terms of independence, I say that if you exclude the military, not the police, the military as in defense of the country, there are very few things in which the Catalan government doesn't have more autonomous power than any state in the United States. Well, it sounds like if you just get rid of the EU, you'd be closer to Switzerland than anything else. But let me ask you this. We read a lot of things in the media here about the separatists themselves. We read that they're far left. We read that they're center right. We read that it's not a left and right thing. It's an urban versus rural thing. We read that it's a young versus old thing. Just give us your overview of the factions involved on both sides. Yeah, I think that none of those statements is correct in general, they may be simplifications. The separatist movement is very, very recent actually if you think about it. Really separatist, there's one thing that is being nationalistic. We have many nationalistic entities and political parties in Spain that thrive or try to defend the idiosyncrasy or the particular culture of the region. That is absolutely fine. The separatism itself started with once the regional government started to be weak. The regional government was for more than 30 years controlled by the center right of the nationalistic parties. And that was fine. They participated in the national government and it was a sort of nationalistic, victimistic in many cases. But a sort of okay relationship like many others happen. What has happened is that there was a very big corruption scandal in Catalonia with that ruling party. And it's predominantly called the 3%. Apparently this party and it's still being under investigation. So there's no part of an investigation but there's already been numerous people that have been detained. That party apparently was taken about 3% commission on every single infrastructure project and budget thing that they were passing to the private sector. And sharing that money to finance illegally the party. And so the party suffered immensely because of that, because of that corruption scandal. So the nationalistic movement started to be taken over by the moral radical part of the nationalistic party. So it was what is called Esquerra Republicana de Catalonia. Republican left of Catalonia is a communist, completely communist. I mean, they defend Castro, Maduro. Actually they went to, Maduro has been the only defender of this process in the international community. So Esquerra Republicana takes over and with them comes a very small party that is CUB that is even more radical to the left. And you can see in Catalonia and Barcelona pictures of you could see today in the general strike more flags of the Soviet Union or with the communist flag than with actually with, for example, the Republican flag. So it was hijacked. The nationalistic movement was taken over by a group that was not as sort of a commodity to negotiation, et cetera, and to look for a, but just wanted separation. And more importantly, just wanted separation with their system. And that is why as a libertarian, I start to get incredibly concerned. Because we go from having an ideal view about your region, idealistic, probably romantic. That's fine. We go from that to very concerning totalitarian messages. If you look at the document that the separatist movement presented as their sort of pre-constitutional document, the transition document, it's a document that starts by breaking the rule of law, that starts by breaking the possibility and the defense of private property. And it completely breaks the separation of powers between the government and the judicial system. So that was when it started to be really, it started to get really aggressive. And that has, and all of these together. So the center right, the very left wing, I mean, for the US, let's be very, I mean, we don't even have to talk about it. It's completely communist. The communist and the populist communists, all of them get together in the elections last year. They have voted six times in the last five years, by the way. So it's not that they don't vote at all. So in the last election, they present themselves as together for yes, June Spelsive, together for the yes. They present all of them together as a sort of using an election, a regional election as sort of a show of power of the people that want to defend them, that defend the yes for a separate system. They present themselves, all of them together and achieve only 39% of the votes. So without the support and showing that the rest of the voters were not in favor of the separation, what they decided was to go all the way. And instead of recognizing that that 39% was not enough and that we had to find a way, because at the end of the day, we're talking about a region in which, however you want to look at it, about let's say 50% are in favor, 50% are against. But you cannot rule a region against 50% of its people. So they decide that they need to make a referendum. Now, the problem of the referendum is not voting itself, is that it starts by breaking the law and the constitution that everybody has voted and that they have the ability to change. They can go to parliament, gather a strong enough majority, go to parliament and change some articles of the constitution. The constitution is not unchangeable and has been changed, is that they decide unilaterally which parts of the law they want to follow while at the same time in the transition document, they present the impossibility, impossibility of any of the smaller parts of Catalonia of seceding. This is a very interesting part because while they defend secession at the same time, they by law prevent secession because there are some small parts of Catalonia that have expressed their desire to stay in Spain. So they call for this referendum. The referendum has been a complete joke. They have changed their own terms in terms of how the referendum must be presented. I mean, in 75 parts of the region, more than 100% of the people voted. It makes Kim Jong-un ashamed. So the problem that you find is that they are using the subterfuge of voting and more importantly, the subterfuge of secession not for freedom, but to impose a very interventionist and completely anti-liberty new state. Well, understanding that, let's say you're correct that roughly half of Catalonia is somewhat favorable towards secession or maybe even less, but nonetheless, that's a lot of people. That's a few million people. And let's say as a practical matter, nationwide within Spain, it's very difficult for them to amend the constitution. There has to be a nonviolent, from a libertarian perspective, there has to be a peaceful mechanism for those, even those smaller parts of Catalonia, which is actually a fascinating point. For even those smaller parts of Catalonia to break apart and perhaps allow the rest of Catalonia to remain in Spain. In other words, talk about the libertarian principle of self-determination and letting people go. Regardless of whether those people, in our view as libertarians make bad choices and implement a government that's worse. Yeah, I think that the principle is, you said it, of secession is of self-determination. Self-determination when the secession process is about destroying the ability of individual liberties and of the basic principles actually of libertarian. As a libertarian, I defend four principles. The first one is obviously rule of law. The second one is the private property. The third one is individual rights. And the fourth one is the ability of people to manage their life more independently further. Now, if I strip the other three and only look at secession, I am missing obviously 75% of the picture. The problem that I find here is that it is not about secession because think about it. When we libertarians talk about secession, we're talking about the ability of people to manage their life better and manage their day to day with more freedom, not just for the people, for a group of people, but for individuals. If that, if you use secession to reduce the civil liberties of people and if you use secession to increase intervention from the part of the state, that is not the principle of secession that we believe in. More importantly, think about it. It's not like they're saying we're going to leave the European Union and we're going to have our own currency, our own central bank, our own taxation system. No, none of that. It is about being in the European Union and succeeding. So what is the difference? So what is the difference? Imagine from where I am today as a citizen in Spain to where I would be. The only difference, it's not about freedom, it's about bureaucracy, it's about intervention. It is that what they want, because in terms of independence, they have had 35 years of experience as a more than independent semi-state. And from the perspective of civil rights, this is what has happened. Catalonia is one of the regions with the highest level of tax wage in Spain, not lower, higher. With more independence, they have increased the tax wage on individuals. Catalonia is also a region in which if you have a business, a small business, and you decide to put the signals and your adverts in Spanish, only you will be fined. So it is not about improving the life of people. It is about controlling people. That is my problem with, not only, and by the way, it's not only with this secession. There is another problem with secession, with secessionist movements in Europe in particular and in Spain as an example today, is that they're not about seceding, they are secessive, sorry, they're about secession and imperialists. They want to separate and add. They want to add to what they call the países catalanes, the Catalan countries. They want to add Valencia. They want to add the Balearic Islands. So you see, it has very little to do with everything that we defend. So once, if we only think about secession itself from the principle of somebody like Ludwig von Mises, who's first, the thing that he, as somebody that was a visionary, always saw as the biggest threat to the world, which is socialism and communism. To me, that is the problem, is that I cannot defend this because it drives the other. But if the secessionists are so bad, if they're higher tax, if they're bigger government, if they're even socialist or communist, there's also argument for you as a Spaniard getting rid of them. Because right now, they're somewhat deluding Spanish politics, right? They're involved as long as Catalonia is part of Spain. Their representatives have a vote in national parliament. And so they can affect you. What about the argument from the Spanish side? Yeah, I think you made a good point. And I think you made a very good point in your article, saying maybe half of the voters in the United States feel in a similar way right now because of the divisive mess with the Trump administration or not. But I, as a Spaniard, I don't want the, if I was an American, I would not want to secede some of the states that have voted for one party relative to another. What I want is to fight, to get all of us better in the things that I defend. So the point that I make, that is obviously my personal opinion. But if I'm a Spanish person, I know that secession is a very negative economic. And in every single term's event, it's going to be a very negative event. If it happens, hopefully it will not. For the rest of Spain, for Catalonia itself and in general. So what I want to do personally, and this is my opinion, is, okay, I have two options. I can renege of my country and decide I personally don't like the many of the policies that the conservatives or the social Democrats impose in my country. I'm completely, I suffer the taxation system. I pay for all our listeners. I pay more than 50% of my revenues in taxes. But I want to fight the battle so that everybody gets better. I don't want to say, look, you can commit suicide on your own. I want to, because I think that there is something that we all gain from being together and that is a lot that we lose from being separate. Well, I understand your argument. I think there's a counter argument, which is that that's a tactical approach. That's a matter of strategy. At some point, we might well decide in America that trying to convince 320 million people of the liberal program is not so easy and maybe convincing 30 or 40 or 50 of a million of them in a region is easier. But that's a question for people who are smarter than me. But if I may, if I may on that point, I agree, okay, that's fine. If tomorrow we are able to find a region or a country in which the vast majority, as well as us, defend the principles of as little government as possible, complete individual freedom, et cetera, et cetera. Like some parts of Honduras are doing, et cetera, with these sort of separate entities, whatever. Very happy to defend it, very happy to defend it. What I don't see is why is in such a complex matter, we need to pay attention only to the right of secession and not to all other civil rights. I think that that is the problem, is that if I pay attention to what people believe that they like about their region and I'm completely, I can understand their position. I can understand the position of a party that wants to implement a Bolivarian Communist Republic in the center of the European Union. I can understand that. I'm not willing to accept it when there's 7% of the voting population, but they make more noise than the other 73, sorry, 93%. That is what I'm, because then what I am doing is not being selfish, is that I am being, that I'm just playing to the objectives of the separatists. This is an important factor, is that if tomorrow I had an absolutely clear picture that there is a definitive way of getting for them more individual freedom, that's what I'm working for, actually, I'm all the time in the media in Spain and the media in the US, as you know, in the UK, et cetera. What I defend for Catalonia is more individual rights for them. What I defend for Catalonia is that their government, whatever it is, has more autonomous power that when citizens see that their tax wage is higher, they can blame their government and not use subterfuge of an external enemy, that is fine. But secession doesn't solve that, you see, and more importantly, it leaves too many people behind. Let me ask you this. Were you shocked at all by the actions of the Madrid government, just the optics of it? We see the National Police, the Guardia Civil, we saw some policemen in polling stations, we saw some people arrested and injured. It's hard to say without being there how widespread it was. Did you find any of that shocking? Well, I found that I never condone any type of violence from the side of the police, but I don't condone any type of violence from the side of the police. But I don't condone any type of violence from the side of the groups that are pushing the limits on something that has already been called, null and void, illegal, that using property that is not theirs, that is public property, using all the subterfuges that I was talking about before. So I remember when I lived in the United States, I lived in Chicago and I lived in New York or I lived in the UK, if you consistently break in the law, particularly in countries as free as the United States and coming from the European Union perspective or the UK, you break the law. You are not going to go lightly out of it, but I think it was mishandled completely because the way, this is personal opinion, but the way that I would have done it was to wait for this charade to happen and then come with the facts that I have presented on every single on my website and on my Twitter accounts and on Facebook, the facts of 100.88% of votes counted, 90% yes. Municipalities were more than 100% of the voters' past, but there's a problem to that because it happened before because this has happened before and there were pictures of people voting 3, 4 times, 5 times, etc. is that they don't care. So see, the use that the separatist movement makes out of allegedly democratic instruments is very, very, very concerning. And I am completely, completely, completely against the police action when it has been completely uncalled for. But I would recommend to any of our viewers or readers to go to Barcelona and do this exercise. Just say, just take a Spanish flag, wave it. See what happens to you. Just do that. And you'll understand what I'm talking about. You will understand it more because if you're in the United States, you've just, actually all this was happening when I was in the United States with all this debate about the flag and the NFL players, etc. But you have seen it with these fights between the Antifas and the white supremacists, etc. Is that the way in which these things are used in tweets, in little videos, etc. to twist the argument in favor of one or the other is amazing. But I was in the Occupy Wall Street period in New York. I was at the time of the Occupy Wall Street and tell you that what happened last Sunday in Barcelona, no comparison. And I'm not condoning either. But I'm just saying that it was something that the separatist movement was waiting to happen to use it from a media perspective. They've done it phenomenally, hats off to that from a manipulation and from a narrative standpoint. It has happened before. We had it in the Basque country in which the terrorists were portrayed internationally as freedom fighters. We've had it in other locations. We've had it in Northern Ireland. We've had it in Scotland. But what I'm saying is that I never defend the utilization of force. But I don't accept that the only image that we're seeing is that without understanding the daily grinding, absolutely asphyxiating violence political violence that the separatists impose on the ones that are not separatists, which shows you why the other 50% don't make massive demonstrations because of work, because everywhere you are completely absorbed by this message. And that is an unfortunate situation that has nothing to do with freedom. So I, again, and I want to make this very, very clear, any uncalled police action, any aggression is to me unacceptable. But every aggression that I have lived and suffered in Catalonia by the separatists is something that has been going on for many, many years, quietly, and they present themselves as freedom defenders. No, my friend. No, they're not. They are not at all. They are not at all. And this is what I'm seeing in the U.S. When I came from the U.S., I was on the plane talking with a friend and he was saying, I can't believe that the Europeans are seeing these antifas as freedom fighters when they're complete totalitarians. And I say, look, welcome home, because I'm in the same side. Because I'm seeing, I am being told that the freedom, I had been told when I was a teenager that the freedom fighters were the terrorists in the vast country. And now I'm being told that these people that have signs all over Barcelona saying, let's signal them in which the government sent leaflets saying, take notes of the neighbors that you believe will not participate in the referendum. My friend, this has nothing to do with voting. The voting part is a subterfuge. And that's why I think that, you know, and more importantly, that's why we have to look at a bigger picture. And I think that today, many of the different parties from the left, from the right, intellectuals, et cetera, are really raising their voices about this problem. That is why secession is sort of like this small part of a very, very complex and very dangerous picture. Well, Daniel, one last question. You wrote this article on Catalonia independence that I thought was really amazing. The analysis here is really unique because you talk a lot about Catalonian bonds and credit risk and what this all might mean in terms of the economy, not just for Catalonia, but also for Spain, also for Europe. There could be in effect much like with Greece, much like with Italy and their own bond debt and the consequences of that. But you sort of lay out three scenarios and I just want to get your brief closing comments on this. One scenario is that there's a declaration of unilateral secession, which you opine will have very negative, bad economic consequences. A second scenario is nothing happens, but tensions and protests remain high, which again has some negative consequences for the greater economy. But a third is that secession doesn't happen, but there is some sort of negotiation between Madrid and the separatists that results in some kind of understanding or new financing for the bonds and that this would be the best of the three scenarios. So what do you think is likely to happen next now after the vote? Unfortunately, I think they will declare unilateral secession. Unfortunately, yes. It doesn't matter that the vote is completely... I mean, I just tweeted from an international observer, a Dutch international observer that was appalled by the whole thing. The article that he published in El País. And it's very sad. They will likely do that. It will not be recognized by the European Union. It will not be recognized by the United States. It will not be recognized by Spain. And therefore, it's a combination of the first and the second scenario that I was making because they will declare it. No one will recognize it, but tensions will remain precisely because no one will recognize it. And if they make any unilateral declaration of independence, the central government, according to the Constitution, can revoke some of those powers that the regional government has. And that's what I don't want. You see, what I want is more independence for Catalonia. What I don't want is idiocy. And I think that a solution that we have actually proven to see that works with the Basque country is to get them a financing agreement by which the level of control that they have is even higher. It is literally... I mean, I was looking at the very sad events in Puerto Rico and the economic implications and what Puerto Rico has and doesn't have in terms of access to the United States. No, I mean, what the Basque country or the Catalan region would have, what the Basque country has is a financing system that is basically just literally being independent in every form that you can be as long as you want to remain in the European Union. Let's all remember that this is based on the fact that all of these separatist movements want to be in the European Union. That I've never understood, to be fairly honest, because if I'm completely libertarian, the first thing that I want to do is to be out of the European Union, which would give me tremendous freedom to do all those things, but this is not the case. I mean, it is actually the opposite. They want to remain at all costs in the European Union and that's why I lay out the risks because they would not be. And all the problems that sort of entails. Well, Daniel Lacalle, thank you so much for your time. If further events unravel, we'd love to have you back on the show to talk about this and anything else with regard to the Fed and central banks and other topics in which you have such tremendous broad knowledge. We appreciate your time, especially in this late evening for you in London. Ladies and gentlemen, have a great weekend.