Spain: serious challenges ahead

04.11.2016662
Mariano Rajoy sworn in as new prime minister. Credits: La Moncloa

Mariano Rajoy, sworn-in recently as new prime minister, is facing many challenges ahead. Credits: La Moncloa

Spain has finally got its first fully functioning government since December 2015 when no party achieved a majority and about four months after the repeat general election in June. For 10 months, the country has been ruled by a caretaker cabinet. This period of ‘frozen’ government and frenetic coalition negotiations has left the conservative People’s Party’s main rivals weaker and divided. But the impasse has significantly exacerbated economic, constitutional and foreign policy issues.

Mariano Rajoy, Spanish conservative prime minister, will lead a minority government that faces big territorial and budgetary challenges. Spain has spent the past 7 years trying to avoid bailouts while territorial crisis involving separatist regions has drawn attention towards domestic issues. It will have to find at least €5bn — through budget cuts or budget revenues — to meet the 2017 deficit target agreed with the European Commission.

In the meantime, the separatist regional government in Catalonia has pledged to hold an independence referendum in 2017 despite fierce opposition from ministers and courts. Rajoy is a passionate defender of Spanish unity, but separatist movements have grown stronger under his government. His re-election is good news for them: new disagreements and conflicts will enable them to raise their voice even louder. Soraya Saenz de Santamaría retains the post of deputy prime minister and will deal with an existential task of negotiating with a wealthy northeastern region.

The European Union threatens to fine Spain for failing to meet deficit targets agreed upon with Brussels. Rajoy is under pressure to raise taxes or cut expenditures. Both actions, especially spending cuts, will be opposed by the left.

At the moment, the prime minister had adopted a conciliatory tone. Is he fit for the task of governing without a majority while negotiating all the time? ‘He will have to adapt,’ says Antonio Martín González, analyst for the Spanish newspaper El Independiente. ‘Still, having secured the support of Ciudadanos and the agreements with the PSOE, he can take many steps forward,’ says Martín. The main one is the budget: ‘He will have to make concessions, especially to the Socialists, but one of the main virtues of Rajoy is that he does well in interventions in parliament.’

‘The deficit and negotiations with Brussels are the main tasks,’ says Martin. But Spain’s Socialists will not approve any budget proposed by an incoming centre-right government, the PSOE’s interim head Javier Fernández insisted. This shows the political deadlock could persist even under a new administration.

To further complicate the issue, Spain has two ministers handling economic matters. Economy Minister Luis de Guindos and Treasury Minister Cristobal Montoro. They will retain their posts in the new government, and some analysts say this makes it difficult for Madrid to speak with one voice to Brussels about budget.

Over the year of ‘acting government’, the voice of Spain has weakened in foreign affairs. And it will not be so easy to change this situation. A new foreign minister will have to renew staff in 69 embassies, including a replacement of Spain’s ambassador to Russia, until November 2017.

Francisco Borja de las Heras, head of the Madrid Office at the European Council on Foreign Relations, thinks that Spain has a visibility problem. ‘It is not seen, even when it is there,’ he says in an interview with Europe Insight while pointing out Spain is still important. While others are arguing with the EU or blocking its initiatives, Spain ‘has generally remained pro-EU’.

Until now, the prime minister has shown little energy abroad. Rajoy was not invited to an informal summit in August where Italy’s Matteo Renzi, Germany’s Angela Merkel, and France’s François Hollande discussed what the EU should do following the Brexit vote. He also did not attend a September summit of Mediterranean EU countries in Athens. There is a growing feeling now in Madrid that the successive enlargements of the EU relegated Spain to a peripheral role: Spaniards became members too late while ‘the East’ arrived too quickly.

Contrary to these issues, one of the few bright things is a surprisingly good state of Spain’s economy. Obviously it did not suffer from the months-long absence of government. GDP growth is over 3% by far, tourists arrive in record numbers and unemployment is down.

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