Nationalism and Independence: Could the Basque Survive Economically Without Madrid?

By Bill Montgomery, MBA '23

By: Staff
photo of a European city plaza wtih a monument in the middle and surrounded by 3-5-story buildings with retail stories on their ground floors.

Plaza de la Virgen Blanca, Vitoria-Gasteiz, Spain (photo by Bill Montgomery, 2023)

Nationalism on the rise

Thus far, it appears to be the decade of nationalism politics and a retreat from nearly three decades of global cooperation following the collapse of the Soviet Union. The United States continues efforts to onshore supply chains and remains reticent to consider substantive free trade agreements, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Brexit remains a topic of intense discussion, particularly as negotiations between the United Kingdom and the European Union (EU) continue more than three years after ratification of the resolution. Meanwhile, the discussion of Scottish independence endures and Catalonia continues to press Madrid on an independence referendum, despite having already done so unilaterally in 2017.

In the latter cases, regardless of political will, the question of economic viability ought to remain a central area of focus in assessing the prospects of sovereign separation; it is on that issue that this short discussion will focus. To aid in this discussion, we will explore the economy of the lesser known, yet impressive, Basque Country in northern Spain.

What is the Basque Country?

The Basque Country (also known in Spain as the Basque Autonomous Community) is an autonomous community (AC) in northern Spain, with an estimated population exceeding two million people. When referring to the administrative properties of the Basque Country in Spain, this article excludes the Navarre AC. The Basque Country is one of Europe’s oldest cultures and has its own language, known locally as Euskara. The Basque cities that are generally the most recognizable to foreigners include the industrial city of Bilbao, home of the Guggenheim Bilbao Museum; the northern coastal city of San Sebastián, officially known as Donostia; Getaria, hometown of fashion designer Cristobal Balenciaga; and Vitoria-Gasteiz, the Basque capital and European exemplar of urban sustainability.

Despite its tranquil properties as a cultural center and destination for tourism, the region has a violent past associated with national separatist movements. For nearly a half-century, the armed Basque separatist group Basque Euskadi Ta Askatasuna (ETA) and the Spanish government engaged in a violent struggle over the political destiny of the region. Although ETA formally renounced its violent intentions in 2011 and was officially disbanded in 2018, Basque nationalist and, to some degree, separatist sentiments in the region remain.

In 2018, Basque activists held a “right to decide” campaign to prompt a referendum on the region’s political future. This movement appeared to follow Catalonia’s 2017 referendum nominally declaring the independence of their own region. Despite this political maneuver, local polling in the Basque Country noted that only 14 percent of respondents desired independence. Additionally, few politicians supporting the “right to decide” appeared willing to define what exactly any referendum would seek to accomplish. Political conditions do not appear ripe for an independence referendum for the region, yet the question remains: Could the Basque Country survive economically as an independent state?

The Basque economy by the numbers

According to a 2021 profile from CaixaBank Research, the Basque Country’s GDP of 74.8 billion Euros in 2019 constituted six percent of Spain’s national GDP, ranking fifth-highest of all Spanish regions. The 2019 Basque GDP per capita of 34,142 Euros ranked second only to the Madrid AC and well exceeded Spain’s national per capita GDP of 26,426 Euros. In 2020, it was estimated that the Basque Country’s GDP shrank by approximately 9.3 percent compared to the 10.8 percent contraction of Spain’s economy as whole. As of Q2 2021, the Basque Country boasted a 10 percent unemployment rate (as a percentage of the active population), providing the region with the lowest unemployment rate in the country and roughly 33 percent lower than the national rate of 15.3 percent.

Three key sectors are dominant in the Basque Country’s GDP: industry-related services represent 25.6 percent; trade, transportation, accommodation, and leisure represent 24.8 percent; and manufacturing represents 25.6 percent. The export of goods represents 34.1 percent of its regional GDP, compared to the Spanish national average of 23.4 percent, highlighting the region’s strong trade relationships with entities external to Spain. Major multinational employers include Mercedes Benz, Michelin, and Siemens, though the Basque maintain their own positioning in energy, telecommunications, financial services, and industrials.

Fiscal and economic structures

Under the Statute of Autonomy and the Economic Agreement, the Basque Country administers its own tax regime, which funds regional infrastructure, public works, and other administrative functions of the state. The Basque state has, however, sought to promote harmony among its own taxation policies and those of Spain and the European Union. A portion of Basque tax collection, referred to as the quota, is transferred to the Spanish government to support defense, foreign affairs, infrastructure, and other central activities.

As a territory within Spain, the Basque Country is already integrated into the EU trade bloc and Eurozone, potentially mitigating some of the challenges vis-à-vis monetary and trade policies. Notably, from 2015-2018, the Basque Country maintained an average budget surplus of 1.1 percent of GDP and public debt at 15.2 percent of GDP. Both metrics met the conditions set forth in the deficit and public debt limits under the terms of the EU’s Stability and Growth Pact.

Could we see the Nation of the Basque?

Regardless of political intentions, the numbers suggest that the Basque Country could very well stand on its own as an independent economy. As an autonomous community within Spain, the region already has much of the governmental and fiscal infrastructure in place to self-govern and administer. But still, we must remain forward-looking; past data simply illustrates how the Basque performed under the umbrella of Spanish governance, even if at arm’s length. Basque secession would likely involve some level of political and economic instability, and this risk would certainly be priced in as investors and multinational corporations considered their positions in the region.

So to the question: Could the Basque economically survive independence? Likely so—but how, exactly, that would play out is far from certain. What is unequivocal, however, is the importance of the Basque region to the Spanish state and the impressive nature of the Basque people. The Basque have long existed in world history and much of their history has yet to be written.

About Bill Montgomery, MBA ’23

headshot of Bill Montgomery.

Bill Montgomery is a class of 2023 graduate of the Two-Year MBA program at the Samuel Curtis Johnson Graduate School of Management and an Emerging Markets Institute Fellow. He has nearly a decade of experience in international relations as an armed service member and diplomat in the United States Government. Montgomery has extensive oversees experience in South and Southeast Asia. He has a strong passion for exploring the intersection of business and politics in the emerging markets, with a particular interest in telecommunications, capital markets, and strategic finance. Montgomery plans to join Altman Solon, the world’s largest global strategy consulting firm with an exclusive focus on the TMT sector, in 2024.