New Spanish government’s strong start could strengthen EU

A picture of the leader of the Spanish Socialist Workers’ Party (PSOE) and the country’s new prime minister
Spain’s socialist Prime Minister Pedro Sanchez has emerged as a comeback star and, possibly, a leader of consequence for the EU (source: dpa)

On June 17, 2018, three vessels – Italian coast guard and navy ships Dattilo and Orione, and rescue ship Aquarius, operated by nongovernmental organizations Medecins Sans Frontieres and SOS Mediterranee – docked at the Spanish port of Valencia where they unloaded 629 immigrants. In itself, it was not much for a country that only this year has received nearly 14,000 migrants, mostly from North Africa. However, the landing made international headlines. The migrants’ hazardous journey had originated in Libya on June 9. The objective was to reach the Italian coast and proceed to other European countries, as so many of their brethren had done before. The two plastic boats in which they traveled were at risk of capsizing when the Aquarius rescued the group on June 10.

Italy’s Deputy Prime Minister and Interior Minister Matteo Salvini, who took office only nine days earlier, immediately ordered that the Aquarius not be allowed into any Italian port. Mr. Salvini leads Lega, a party with a strong anti-immigrant orientation and which is part of the country’s new coalition government. Malta also refused the ship entry to its ports.

It used the opportunity to call for Europe to address the question of migration across the Mediterranean Sea

Mr. Salvini then busied himself with enlisting support from similarly oriented Europeans, in particular, the leaders of the countries belonging to the Visegrad Group, the government of Austria and the Christian Social Union in Bavaria. The latter party’s head went on to challenge German Chancellor Angela Merkel over the migration issue, creating a crisis in the country’s fragile governing coalition.

Enter a new socialist government in Spain, at the time not two weeks old. On June 12, in a decision hailed by its political friends but also by some of its foes, it accepted the Aquarius and the two other vessels. Also, it used the opportunity to call for a concerted European effort to address the question of migration across the Mediterranean Sea.

French President Emmanuel Macron did not miss a beat. He hailed the Spanish government’s move in a way that infuriated Mr. Salvini and provoked a diplomatic spat between France and Italy.

Comeback wizard

This incident was the new Spanish government’s first foray into the international arena. It made quite a splash, either by sheer luck or an uncanny ability by new Prime Minister Pedro Sanchez to gauge the political moment. Frequently dismissed in the media as the inconsequential head of a has-been party which he led to defeats in 2015 and 2016, he has now emerged as a comeback wizard who has reclaimed leadership from the regional heavyweights of the Spanish Socialist Workers’ Party (PSOE).

Less than 24 hours after a Madrid court convicted several members of the ruling Popular Party (PP) and the party itself of embezzlement, bribery and illegally financing election campaigns, Mr. Sanchez initiated a no-confidence vote against the conservative government. In a matter of days, he won the support of a majority of the Spanish Congress of Deputies, as well as public opinion.

On June 1, 2018, he received the mandate to form a government for the remaining two years of the legislature. To the surprise of most, it was a roster of highly qualified and experienced politicians and nonpoliticians, many with strong EU credentials, some known for their rather conservative stance. Of the 17 ministers, 11 were women.

A picture of the Aquarius unloading rescued migrants in the Spanish port of Valencia
The rescue ship Aquarius arrived in Valencia after it had been denied entry by Italy and Malta (source: dpa)

Scenarios for Spain

LEADING: RESTORATION OF HOPE. Mariano Rajoy, the PP leader and prime minister from 2011 to 2018, had managed to turn around an economy reeling from the impact of the 2008 financial crisis. The prolonged economic calamity that followed left Spain with a 25.8 percent jobless rate at its 2012 peak and a drop of nearly 9 percent in gross domestic product between 2009 and 2013. After three years of growth higher than 3 percent, unemployment had fallen to a (still high) 16.6 percent in 2017.

In contrast to its predecessor, the Sanchez government signaled a commitment to address the country’s most pressing problems

Mr. Rajoy’s single-minded determination, however, left the country divided between those who had benefited from the recovery and the more significant number of those who had suffered severe income cuts. Between 2008 and 2015, salaries in Spain dropped on average by 12 percent while the percentage of temporary and precarious jobs increased sharply in the labor market. Social benefits, too, were curtailed to bring the excessive budget deficit within the EU-mandated 3 percent limit.

Furthermore, the prime minister’s already slim majority in the legislature was undermined by his scant disposition to seek policy compromises during his second term, which started in 2016. This resulted in many vital issues being neglected or mismanaged, from the Catalan independence movement to Spain’s place in the EU.

In sharp contrast to its predecessor, the Sanchez government signaled a commitment to address the most pressing social and environmental problems. It promised to restore mutual understanding and dialogue to Spain’s divisive politics while pursuing fair, balanced, stable and fiscally responsible growth strategies. There is a wealth of outstanding legislative proposals endorsed by groups of parties that represent a majority of seats in the Spanish congress. Thus far blocked by the Rajoy government, many of these measures may now be allowed to move forward.

While it can build coalitions around some issues, the new government commands less than a quarter of the votes in congress (85 to the PP’s 134, out of a total of 350). What gives it a fighting chance, however, is the Spanish constitution. It requires any party putting forward a vote of no confidence to propose a candidate for prime minister backed by an absolute majority in congress – a nearly impossible task in today’s fragmented chamber.

Mr. Sanchez’ no-confidence motion wrong-footed the socialists’ main opposition center-right rival, Ciudadanos (Citizens), until then the seemingly invincible front-runner in voters’ declarations. However, after casting its lot with the PP, irretrievably tainted by corruption and political inaction, Ciudadanos quickly fell to second place, while the socialists soared to the top. The PP sank to fourth place, after the leftist Unidos Podemos (Together We Can). Under these conditions, any obstruction by the PP or Ciudadanos may only enhance the PSOE’s election prospects.

The center-left government can survive until the end of the legislature’s current term in 2020. For that, it needs to address at least some of the country’s most pressing problems, open up the political space for dialogue and manage the budget it inherited in a way consistent with its stated priorities.

While getting its house in order, Madrid could add strength to those EU states that remain committed to the union and resist populism

Looking further, success in the mid-2020 elections would allow the government to tackle the fundamental issues, such as correcting the weaknesses in the economy already identified by the European Commission and the International Monetary Fund. These include the excess of marginal jobs in the labor market, depressed salaries and an economic model overly dependent on tourism and construction. Spain also needs to root out corruption and cronyism and reverse a decline in civil liberties. While getting its house in order, Madrid could add strength to those EU states that remain committed to the union and resist populism. Cooperating with EU member countries that favor common management of migration issues and finding a way to ease the centrifugal tendencies in Spanish regions such as Catalonia or the Basque country also figure in the optimistic scenario.

This scenario would usher in a period of stability and optimism in Spain, both for voters and the financial markets, at a time when the waves pushing the Spanish economy forward (the European Central Bank’s low interest rates and quantitative easing policies, low fuel prices and strong tourism earnings) are starting to ebb.

In this writer’s view, this is the most likely scenario, with 45 to 55 percent probability.

POSSIBLE: INSTABILITY. Under this script, the government fails to push meaningful measures through the legislature due to strong opposition and obstruction by the PP and Ciudadanos. Trying to avoid a full-blown political crisis, the socialist government could opt for an early parliamentary election and blame the opposition for the lack of progress on reforms that the Spanish voters seem to demand.

Italy’s new policy of trying to shut its doors to migrants has begun redirecting the human flow to Morocco

Under these conditions, the socialists would be likely to win with a narrow majority. That would force the PSOE leader to either risk his voters’ wrath by diluting the party’s social program and seeking to join forces with Ciudadanos (the approach already tried after the 2015 elections) or radicalize it and agree with the leftist Unidos Podemos. In neighboring Portugal, a similar government model is tellingly known as “gerigonca” (a contraption).

Both these strategies would lead to an inherently unstable government, undermining the markets’ confidence and weakening the Spanish economy.

This scenario has a 25 to 35 percent probability.

LEAST LIKELY: THE VICIOUS CIRCLE. The Sanchez government’s ambitious social agenda may encounter an insurmountable level of opposition in parliament, media and business. As the socialists’ attempts to institute real-life changes come to naught, the government may be tempted to change tack and resort to populist measures designed to appease disgruntled citizens.

This scenario would drive the ruling party into a vicious circle of losing both the confidence of financial markets and voters. A perception that the central government is weak could also embolden the Catalan executive to take further unconstitutional steps toward secession.

At the same time, the challenge of migration, already climbing up the list of priorities because of a steep increase in arrivals to Spain in 2017 and 2018, is bound to worsen. Italy’s new policy of trying to shut its doors to migrants has begun redirecting the human flow to Morocco. That country, though, is faced with internal and regional unrest, and is diverting its law enforcement resources away from taming irregular migration. Rabat has already used this issue to put pressure on the bilateral agenda with Madrid.

All these factors together would precipitate early elections. These would punish the government for its failure and mark another chapter in the long slide toward irrelevance for the mainstream political actors, the PSOE and the PP.

At that point, Spain would probably find itself ruled by the new and untested center-right liberal Ciudadanos with the new and untested leftist Unidos Podemos as the main opposition.

Eventually, the country would stabilize, but only after going through a prolonged stretch of uncertainty that would have adverse effects on its markets, public finances and international position.

This scenario has 10 to 30 percent probability of materializing.

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