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Last week I was in Barcelona for two days, giving a talk at an event on “the right to decide,” sponsored by the Centre Maurits Coppieters (nonprofit arm of the European Free Alliance, the European Parliament group for ideologically mainstream minority nationalist parties) and by the Fundació Josep Irla (nonprofit arm of the Catalan Republican Left [ERC], largest pro-independence party in Catalonia). I also did some media interviews. You can see some excerpts of my interview with Catalonia’s TV3 evening news here (in Catalan).

I was interested in going to find out more about Catalonia’s independence movement and its prospects. For background on the Catalan movement, see my post here on Pileus from September 24, 2012, two weeks after the massive Catalan National Day demonstrations that kicked off the current process. (That post, including its forecasts, has held up pretty well, I’d say.)

Now that the Spanish Constitutional Court has invalidated the consulta (consultative plebiscite) that the Catalan Government had authorized with the support of over two-thirds of Catalan MP’s and three-quarters of the Catalan electorate, the way forward is murky. An official consultation will not now happen. Instead, tens of thousands of volunteer poll workers are signing up to help with an unofficial poll that will involve ballots and ballot boxes and occur on November 9.

It remains to be seen how successful the November 9 consultation will be. The pro-independence parties and civil society organizations are trying hard to mobilize voters and volunteers for the event. The anti-independence parties are boycotting the vote, as indeed are some far-left types who hate Artur Mas, such as the leader of the ex-communist, ecosocialist party ICV-EUiA, which otherwise supports the “right to decide” and remains agnostic on independence.

If the November 9 consultation is successful, then the pro-independence parties will try to negotiate a “unitary party list” for early elections to the Catalan Parliament. They will treat this election as a plebiscite-by-proxy, and if an absolute majority of seats and votes go to the pro-independence list, Artur Mas will take it as a mandate for independence.

However, several difficulties remain. The more radically independentist party, ERC, wants to declare independence right away after a successful “plebiscitary election.” Artur Mas’ party, Convergence and Union (CiU), is divided between independentists and those favoring a solution like confederation. (Technically, the party is a long-standing alliance between two separate parties, the now-independentist Democratic Convergence of Catalonia and the autonomist Democratic Union of Catalonia.) Generally, the last few days have seen more division and acrimony among secessionist leaders than the previous two years, and if it continues, that division will alienate voters. Civil society groups continue to call for unity among the pro-independence leaders.

Another difficulty is that while a majority of Catalans with an opinion on the matter favor independence (a recent El Mundo poll had the anti-independence side ahead within the margin of error, but their polls have always been biased in an anti-independence direction), polls suggest the pro-independence parties would not together gain a majority in early elections. The reason for this is that many independentists are not in the secessionist parties. For a successful result, the “unitary list” will need to contain important leaders from civil society and non-secessionist parties.

If the Catalan process stumbles now, it will be a shame, because it will show the Spanish government that they can face down demands for more autonomy simply by standing pat and threatening to arrest politicians. Spanish autonomous communities like Catalonia enjoy far less autonomy than American states (they are not allowed, for instance, to vary the overall tax burden from a central standard).

The most likely outcome of the process now seems to be (more…)

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Unless the polls are systematically biased or there is a late-breaking surge in support for “Yes,” the “No” campaign looks set to squeak by with a narrow victory in the Scottish independence referendum. On the betting markets, a “Yes” vote has plunged below an implied probability of 20%. What has this decline in the prospects for independence done to capital markets? In my last post on the subject, I found that British firms and the pound were nearly untouched by what was at the time significant momentum for “Yes,” but that a nine-firm Scottish equity index was hit hard. If those losses reflected unease about independence, then the latest news should have caused growth in my Scottish equity index.

The biggest decline in the Yes team’s chances actually came overnight September 11-12, when the chances of Scottish independence abruptly fell about 10 percentage points on the release of new polls in the evening of September 11. (For a full list of recent polls, see Wikipedia.) The Yougov poll showing “No” in the lead (a dramatic reversal from its previous poll) seems to have been leaked just before the closing bell on September 11.

betfair independence odds

Accordingly, I examine the performance of the Scottish equity index on the London Stock Exchange between 4:30 PM and 5:00 PM local time on September 11, when the odds of Scottish independence declined so rapidly. These are the nine stocks I include in the index: SL, SSE, FGP, WEIR, SGC, AGGK, WG, ADN, and MNZS. Of these, eight of nine rose on the poll news. Again, I weight by each stock by its market cap to create the index. The index rose 0.5% on the news, a rather small increase compared to the 1.7% decline after the shock Yougov poll showing “Yes” ahead. The overall patterns were pretty similar, though. The two transportation companies, Firstgroup and Stagecoach Group, were basically unchanged between the two. Energy-linked firms and Standard Life led gainers. Aggreko (temperature control systems) registered a small gain, and Aberdeen Asset Management a somewhat larger one.

Roughly a ten-percentage-point drop in independence likelihood led to a 0.5% gain in the value of Scottish equities, less than a third of the loss in Scottish equities after an eight-percentage-point gain in independence likelihood just a few days prior. On balance, these results suggest we should revise downward the costs of secession suggested by the prior post.

One objection to this interpretation might be that the leak of the Yougov poll just before the closing bell gave traders little time to respond. But this does not appear to be the case. The Scottish equity index was flat at the opening bell on September 12, suggesting that there was no new information for traders to consider.

Here are two more interpretations. First, betting markets are less liquid and well-capitalized than financial markets. The actual gain in the probability of Scottish independence after the first Yougov poll may have been greater than the immediate response on betting markets. Second, the shock of a poll actually showing “Yes” ahead may have led traders to overestimate the likelihood of Scottish independence, and perhaps even the costs of secession (in a moment of panic). Having been inured to the initial shock and its aftermath, traders then took later news with more equanimity.

Overall, though, the results are still suggesting net economic costs to Scottish independence. How much of the emphasis should be put on the “Scottish” part of that phrase and how much on “independence” remains a matter of debate, but clearly energy and financial firms are more affected than transportation and service ones.

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What can we learn from capital markets about the likely consequences of Scottish independence? A trio of recent polls has shown the “Yes” side to have pulled roughly even with “No.” With momentum on their side, it’s not unthinkable at all that “Yes” will pull it out, resulting in the first secession from a Western democracy since Iceland withdrew from Danish union in 1944. Most American commentators, from Paul Krugman to Tyler Cowen, oppose Scottish independence and forecast economic disaster for the new country. Are they right?

Let’s look at the behavior of capital markets in Britain since these polls’ release to find out. First, let’s set the stage by looking at how betting markets price the probability of Scottish independence. Unfortunately, there are no nice InTrade-style charts for implicit probabilities anymore, at least not that I can access from the United States. From oddschecker.com, I am able to pull odds from different exchanges from the beginning and end of each day. Looking at the markets with most liquidity, it looks as if the odds for independence moved from about 19.5% Friday night to about 25% Saturday night, after the release of the YouGov and Panelbase polls (the Panelbase poll suggested “No” might still have a small lead). On Monday morning the odds stood at about 23.3%. After the release of the TNS poll Monday evening (confirming the dead heat), the odds moved in to 26.0%.

Next, let’s look at the behavior of capital markets over this period. Here is how the pound has fared against the euro:

euros per pound

Not much of a correlation. To be sure, the pound fell against the euro when trading opened Monday morning, following the shock weekend poll from Yougov and the somewhat-reassuring poll from Panelbase, but the TNS poll released late Monday night appears to have had zero effect on the pound, even though it did have a small effect on the betting markets.

Now, the pound has fared a little worse against the dollar, because the euro has also dropped against the dollar. This may reflect that traders believe Scottish independence raises the probability of British exit from the EU. But this would not be a direct cost of Scottish independence, and it would ultimately be up to English, Welsh, and Northern Irish voters whether they want to withdraw from the EU.

What about the stock market?

dowftse

I’ve got the Dow in there for comparison (in green). So the FTSE fell about 0.3% on opening Monday, then drifted downward throughout the day, finally recovering all that ground except the initial 0.3% drop. On opening Tuesday after the TNS poll, it actually rose. As of this writing is down just about 0.4% from Friday’s close. This looks like a muted response to me.

But what about Scottish-exposed stocks in particular? I took the list of top 25 Scottish companies here and winnowed the list down to those listed as having Scottish ownership and being publicly traded. Nine companies fit that test. I then constructed a weighted average of their share prices at Friday close, Monday open, Monday close, and Tuesday open, the weights being each stock’s market cap according to investing.com. Recall that there were two surprise polls, one over the weekend and one released Monday evening, the former having the greater effect on betting markets.

The Scottish index I created lost 1.7% of its value on opening Monday morning, a noteworthy drop because it happened right away. It’s plausible to attribute this drop to the increased risk of independence. However, today it lost nothing on opening – in fact, it was up 0.1%. Still, the total loss to these nine firms’ market value amounts to about $800 million. The fact that there was no further response of capital markets to the TNS poll, even though betting markets did respond, weakens our confidence somewhat that investors are responding negatively to the prospect of independence, but let us work with the assumption that they are.

What would happen to these firms’ value if independence were dead certain? Expected utility analysis helps us here. They lost $800 million in value on an increase in the probability of independence of 5.5+2.7=8.2%. We can infer that an increase from 20% to 100% would wipe out $800 million*8/.6=$7.8 billion. That’s a fair proportion of their existing value: about 16%. Of course, investors are risk averse, and the very uncertainty of the outcome might be driving a fair proportion of the losses.

A closer look reveals that different stocks responded differently to the poll news. Two transportation companies, FirstGroup and Stagecoach Group, lost virtually nothing, and Aggreko, which rents temperature control systems, lost absolutely nothing. Financial and energy/power companies were pounded. An engineering company closely linked to the oil industry, the Weir Group, took a more modest 1.0% loss.

How to sum up? So far (more…)

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Tyler Cowen thinks Scotland should stay in the UK, and so do I. But this bit of his blog post I can’t quite agree with:

If a significant segment of the British partnership wishes to leave, and for no really good practical reason, it is a sign that something is deeply wrong with contemporary politics and with our standards for loyalties.

I find this entire prospect depressing, and although it is starting to pick up more coverage in the United States and globally, still it is an under-covered story relative to its importance.

This is a referendum on the modern nation-state, an institution that has done very well since the late 1940s but which is indeed often ethnically heterogeneous at its core. While I expect Scottish independence to be voted down, if it passes I will feel the world’s risk premium has gone up, even if the Scots manage to make independence work. (emphasis original)

The main reason why some Scots want to leave the UK is ideological. Scotland consistently votes 15-20 points to the left of the rest of the UK, and with a current center-right government and a constantly improving prospect of a Conservative victory at the next election, many left-wing Scots fear the policies they’ll face in a united Britain. If you follow the Twitter feed of Yes Scotland, you’ll see a stream of claims about new social programs an independent Scotland could implement, and explicit fears about future Tory rule.

Furthermore, Scots are discontented with devolution, wanting something more, but many of them do not trust that David Cameron will follow through on promises to enact more generous autonomy for Scotland (his party is, after all, still the Conservative and Unionist Party).

Growing state intervention in people’s lives has made ordinary ideological disagreements more salient and fundamental. As a result, ideologically polarized people in advanced democracies often wonder whether they can live in peace with “the other side.” Is this depressing or just inevitable? Anyway, I’m not sure Scottish secession would raise the world risk premium any more than Norwegian or Icelandic secession did, or than Faroese independence would. It would at least be peaceful and negotiated. Still, I reiterate that it is probably a bad idea for Scots, and unlikely to happen according to the polls.

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I delivered this brief talk to a Model UN conference at Dartmouth on March 28. Here is the text of my remarks.
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My topic for tonight is “The Right to Self-Determination in International Law and Practice.” The right to self-determination is one of the most controversial concepts in international relations today. The government of Russia has cited it as a justification for its annexation of Crimea following a doubtfully free and certainly unfair referendum in that territory. The government of Catalonia has cited it in its effort to hold a truly democratic referendum on independence from Spain later this year. What does the right to self-determination mean in international law? And how well does international practice actually conform to international law?

The right to self-determination of peoples is found in the original United Nations Charter, which states among its purposes, “To develop friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, and to take other appropriate measures to strengthen universal peace.” The two original UN human rights instruments, the ICCPR and ICESCR, also guarantee the right of self-determination to “all peoples.”

But what is a “people”? That was left undefined. The UN developed a list of “non-self-governing territories” whose status was to be monitored. Originally, the right to self-determination for these territories was not meant to include a right to immediate independence. Article 73 of the original UN Charter merely provides that member states administering non-self-governing territories ensure their “political, economic, social, and educational advancement,” and assist the “progressive development of their free political institutions.”

In the 1940s and 1950s, anticolonial movements emerged in Africa and Asia to fight for immediate independence, and frequently faced stiff military opposition from their imperial masters. The major colonial powers gradually realized that they could not prevent many of their territories from claiming independence. Only in 1960 did the UN adopt the “Declaration on the Granting of Independence to Colonial Countries and Peoples.” This resolution affirmed that the right of self-determination meant that every non-self-governing territory was to have a chance to decide its own political status, whether integration with the metropole, a status of “free association” with the metropole, or independence.

The criterion for determining whether a territory belonged on the list for decolonization was that it be “geographically separate” and “distinct ethnically and/or culturally from the country administering it.” This criterion has come to be known as the “salt water test”: only if a territory is separated from its metropole by salt water does it have the right to self-determination under international law.

Clearly then, the right to self-determination under international law was never meant to be applied to secessionists in the classic sense. It was a tool for decolonization. This fact does not mean that secession is illegal under international law, only that member states of the United Nations are not required to give secessionist regions the opportunity to determine their own political status. Russia’s justification for its forcible seizure of Crimea is therefore wrong.

International law itself is merely the creation of the governments that happen to exist on the globe. It would be surprising if existing governments were to set up a legal framework for their own dissolution. The “salt water test” is morally arbitrary, and it does not seem to have any rationale in conflict prevention or reduction.

There is another concept of the right to self-determination: a moral concept. Last year, (more…)

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In the third and final part of my series summarizing my working paper, “Designing a Constitutional Right of Secession” (here are parts one and two), I examine the legitimate objections we can raise to a right to secede. Some of these other scholars have previously mooted, while others are apparently original. Regardless, I will argue that all of these arguments merely establish reasons to qualify the right to secede, rather than to abolish it altogether.

Strategic Demarcation of Territory

When secessionists can determine the territory subject to a referendum, they can include as much territory as they feel confident getting away with, while still winning a referendum. They may include territory dominated by opponents of secession, so long as the rest of the people living in the seceding unit can outvote them.

One way of dealing with this problem is to allow recursive secession: territories that oppose secession can themselves secede from the seceding state. Indeed, that may be a good idea, although it poses some risks: the central government could use recursive secession as an excuse to attack a secessionist state, and there will always be controversies about where boundaries should lie. What if secessionists don’t permit recursive secession? Simply banning secession altogether wouldn’t make sense as a response, since that would violate the rights of the many to safeguard the rights of the few.

A better solution is to limit the right of secession to top-tier geographical subunits of the state. Now, there are some problems with this solution as well. First, administrative boundaries may be morally arbitrary, just like
interstate boundaries. Second, relying on administrative boundaries to set the limits of regions that enjoy the right to secede gives central governments an incentive to manipulate administrative boundaries to dilute potential secessionist challenges. Third, allowing regions to secede along existing administrative boundaries may trap significant minorities within the new state. These are all very real problems, as Yugoslavia’s attempted recursive secessions demonstrate. The secession of Croatia trapped Serbs, and the secession of Bosnia trapped both Croats and Serbs. The Badinter Commission denied these groups a recursive right of secession, and therefore they saw their only option as war combined with ethnic cleansing to alter ethnic balances.

So the administrative-boundaries solution works best if there’s a good procedure for letting people decide to which region they will belong. There should be an easy way for people to secede by referendum and set up new administrative regions. It should also be easy to hold referendums in small areas on moving from one region to another. Had Yugoslavia followed these principles, Serb-majority areas of Croatia and Bosnia would not have been part of Croatia and Bosnia, respectively, at all, and there would have been no reason for war.

Even when there are no good procedures for making sure administrative boundaries line up with what people on the ground want, it is better to make existing regions the subjects of a legal right to secede than to allow secessionists or the central government to redefine the scope of the territory subject to secession without the agreement of the other side.

Irredentism

Irredentism refers to movements seeking to take territory from one state and give it to another. Irredentism needs to be regarded more skeptically than secessionism, because irredentism has often been a cause of war among states, including both world wars. Regional irredentists often instigate violence to try to draw in their “parent” state.

Legalizing irredentism by plebiscite would encourage states to meddle in each other’s domestic politics in hopes of boundary revisions. Instead, irredentism can usually be alleviated with generous autonomy, as has occurred in Aaland and South Tyrol. Where irredentism cannot be satis ed with autonomy, such as where the irredentist group is a minority in the disputed region (e.g., Northern Ireland), then a solution will be more difficult, and the states involved may not wish to rule out completely a future transfer of sovereignty. In most cases where a secessionist movement has irredentist potential (e.g., Nagorno-Karabakh), it is reasonable to impose a conditions on a right to independence that the new state will never be allowed to join its ethnic-kin state, that the new state will be demilitarized, and so forth.

Vague Referendum Questions

(more…)

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In my last post on this topic, I argued for a right of unilateral secession on the grounds that: 1) legalizing secession would reduce the risk of violence on net, and 2) codifying a plebiscitary, unilateral right to secede would reduce uncertainty without any compensating disadvantages. In this post, I consider some common objections in the literature to a liberal right to secede and show why they do not overturn the case for a legal right of unilateral secession to be accomplished through democratic plebiscite.

1. Rights-Violating Secessionists

Counting heads is probably not the best way to determine the relative legitimacies of governments. If a region gets 51% of the voters to approve secession, but then the 51% decide to persecute the 49% minority, then secession would cause a net loss in freedom or human rights. Under these conditions, secession should be restricted.

In the abstract, the case for restraining rights-violating secessions is plausible, but it is unworkable institutionally. A legal provision allowing the central government to veto secession if the secessionists are likely to violate rights would suffer from the “biased referee” problem. Central governments will be tempted to use the provision as an excuse to ban all secessions. Similarly, secessionists will always claim to be liberal if they are required to do so, but that does not mean practices will not change once they achieve independence.

Some scholars have argued that the potential for rights violations by secessionists justifies a higher threshold in the referendum on independence (say, 55% rather than 50%+1). There are two problems with this argument: 1) the correlation between secessionists’ likelihood of violating rights and ability to get widespread support in a referendum is probably weak, and 2) this suggestion assumes that secessionists are more likely to violate rights than governments. If governments are more likely to violate rights, then a higher threshold will tend to prevent more morally desirable secessions than the morally objectionable ones it prevents.

In cases such as the U.S. Civil War, in which the central government is sincerely persuaded that a particular secession would be morally disastrous despite, let’s assume, a constitutional provision permitting it, then the government may be morally justified in acting extraconstitutionally to prevent the secession.

2. Nationalist Objections

Nationalists (more…)

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