William Chislett | When the Socialists won a resounding victory in the 1982 election, Alfonso Guerra, the Deputy Prime Minister, said ‘We’re going to change Spain so much she’ll be completely unrecognisable’. Anyone who has lived in Spain since then, as this author has done for most of the time, cannot but be impressed by the changes that have taken place. As the British novelist L.P. Hartley said: ‘The past is a foreign country; they do things differently there’. This is certainly the case of Spain over the past 40 years; the country today is another planet.
The next 40 years, however, will be very different. The ruling political party of whatever colour needs to regain its capacity for structural reforms. The reforms in the last decade have largely resulted from the country’s Great Recession, which were necessary, but now that this period is over reforms for the future are required.
The challenges ahead will test the largely cohesive society that has been created over the last four decades. The most visible one is the ageing of the population and the pressure this is already exerting on the sustainability of the healthcare system and the viability of the state pension system. In 2050 35% of the population will be over the age of 67 compared with 16.5% today. Within a decade, unless there is a significant demographic change, only around 400,000 people will be entering the labour market every year whereas between 700,000 and 800,000 will be retiring annually. Such a change would put a heavy burden on public finances and weaken Spain’s economic growth. Either policies are introduced to increase the very low fertility rate of 1.33 children (below the replacement rate of 2.1) or Spain is going to need another big influx of immigrants. The IMF suggested Spain needed 5.5 million migrants by 2050 to reverse the deterioration in dependency ratios resulting from the ageing population.
Unemployment was well down from its peak of 27% in 2013, but at around 15% in 2018 was still absurdly high. While countries such as the UK, Germany and the US have virtual full employment, albeit with millions of precarious jobs, Spain’s jobless rate will remain in double figures for years. Lowering the rate to below 10% requires profound structural labour market and educational reforms and a revamped growth pattern. Drop-out rates at the secondary school and tertiary levels remain high and there is a mismatch between education supply and labour demand, with limited vocational training. Universities have been slow to adapt to the changing economic environment; they need to do more to link research to the needs of the economy and improve the quality of training. R&D and innovation need to be strengthened. Employers have exploited to the full and abused temporary contracts for new recruits, which provide no incentives for on-the-job training and hence enhanced productivity. The establishment of a single contract for all workers, in place of the plethora of existing contracts and their complexities, could help to address this issue.
The general government budget deficit was also much lower and by dropping below 3% of GDP in 2018, for the first time in a decade, Spain would cease to be the only country under the European Commission’s excessive-deficit procedure. Once this happens, however, there would be little leeway for much more state spending unless revenue can be substantially increased through tax reform and a greater reduction of tax fraud and tax avoidance. The very high level of public debt at 98% of GDP is a millstone around the government’s neck (even more so when interest rates finally begin to rise) and one making it hard to generate a primary fiscal surplus (before interest payments). The size of the debt makes Spain vulnerable when the next downturn occurs.
Politically, the stable two-party system since 1982 with the conservative Popular Party and the Socialists, which ended in 2015 with hung parliaments as a result of the rise of Podemos on the radical left and Ciudadanos towards the right, does not look like returning. A wider choice of political alternatives is a healthy change, and one that polls show Spaniards are happy to keep, but it has come at the cost of a loss of reformist momentum. Prime Minister Pedro Sánchez only has 84 of the 350 seats in Congress, making the life-span of his government potentially short.
Spain has so far bucked the trend of coalition national governments in Europe. Together with Malta, Spain is the only EU country that has not had a coalition government in the last 40 years. Such governments exist at the regional and municipal level in Spain. Depending on the results of the next election, due by July 2020, it would be good for the body politic and the maturity of the excessively acrimonious political culture and debate to have a reformist coalition government, thereby reviving the admirable spirit of consensus that characterised Spain’s transition to democracy. Spain cannot afford to stand still.
Such a government would be better placed to resolve the stand-off in Catalonia, reform the whole system of decentralisation by making Spain a fully-fledged federal state along the lines of Germany and other problems such as improving the education system.
Spaniards should be proud of what has been achieved, but they cannot afford to rest on their laurels.