Spain’s Three Problems: Deceleration, Budget And The Demands Of The Separatists

Time for Spain to get a foreign policySpain's rating could worsen if the government repeals past reforms

Perhaps for the first time in many months the attention paid to the economy competes with the political crisis when evaluating the situation in Spain. For two reasons: one, there are signs of deceleration which should not be lost sight of, and two, because these symptoms could be, together with the difficult negotiation over the Budget – a key test of the viability of Pedro Sánchez’s new government.

The data is there. In August the number of unempoyed increased by 203,000, the highest figure in recent years. We should not over dramatise because of the end of many seasonal jobs in the tourist sector, but … at the same time in July the number of tourists fell by 5%. In the first seven months of the tourists had grown slightly (47.1 million, compared to 46.9 million last year), but the balance at the end of the year could be different. However it turns out, the boom of recent years appears to have hit its ceiling which in a sector that accounts for 11% of GDP must have consequences.

The judgement of the authors of the global PMI index for August on the Spanish services sector cannot be ignored either: “The Spanish services sector seems to be settling into a phase of slower growth in the third quarter (…) The tendency of new orders is slightly worrying given that growth has slowed for the fifth consecutive month (…) These signs of weakness in demand has undermined the confidence of service companies (…) On a more positive note, the sector remains comfortably within expansionary territory (the index remains above the dividing line of 50) and the labour market shows firmness.”

Attention then to the evolution of the economy. The Minister Nadia Calviño has shown herself optimistic, as is her job, and has maintained the prediction for GDP growth at 2.7%, but she has recognised that the favourable tail winds (ECB interest rates, oil prices …) are running out and that the period of strong growth has corrected few of the imbalances in the Spanish economy. Thus she put her finger on the sore spot a few days ago in the newspaper Expansion: “Sovereign debt has increased 400 billion since 2011 and reached 100% of GDP in 2014. Since then, the strong growth has been used to reduce its weight by only a few tenths. The reduction in the deficit has been due to the strong cyclical performance without any improvement in the structural situation of our public finances, which is what counts for future sustainability.”

A sensible analysis which leads her to conclude that “budgetary consolidation is unavoidable … a responsible economic policy cannot preach an increase in the public déficit but even less recommend as a solution cutting taxes”. Minister Calviño concludes that “budgetary discipline and social policies, far from being incompatible, are absolutely inseparable if we want to guarantee sustainable growth and this is the key which frames the government´s decisions”.

It is a refined and comforting conclusion. The problema lies in to what point the Minister of Finances, Maria Jesus Montero, will be able to  weather the demands of Podemos´negotiators to approve the spending limit. And in the final decision of Pedro Sánchez, who must calculate the pros and cons of a budgetary pact with Iglesias. A pact for the sake of a pact would not be good.

But Sánchez will also have to overcome the veto of the PP and Ciudadanos in the Congress commission to reform urgently the law of budgetary stability of Montoro, which gives the Senate veto power – disproportionate given the constitutional supremacy of the Congress of Deputies – over the approval of the spending ceiling. And even if he overcomes this obstacle and the negotiation with Podemos, he will still need the positive votes of both ERC and PDeCAT.

And these votes will be conditioned by what happens in the Supreme Court in the trial of the prisoner politicians, which the separatists – and a large part of Catalan public opinión – consider political prisoners.

This is what can be concluded from the seventh massive demonstration on 11 September. Catalan separatism, roughened by the failure of the unilateral declaration of independence of 27 October last year, maintains its cpacity to mobilise its supporters and renounces (in theory at least) none of its demands but does not want – in the short run at least – to return to the magins of the law. It knows this would have serious and unpleasant consequences. In reality today its minimal common programme is that outlined by ERC, which has converted itself into the most responsible faction in Catalan separatism: to find a difficult arrangement on the sentence of the Supreme Court  to, afterwards, be able to have a pragmatic negotiation of the other issues. This second part is not supported by the more radical separatists, who believe that only Puigdemont embodies legitimacy.

It is a demand not within the competences of Pedro Sánchez, as Foreign Minister Josep Borrell told the BBC on the same 11 September – but despite that it will be taken into account in the budget vote. If Sánchez cannot convince them, or broker a deal with the separatists – even supposing that Iglesias shows himself reasonable with an eye on the autonomous and municipal governments after the May elections – Spain will be left without a budget for 2019, which will not be good news for the economy and will force early elections.

The Constitution is, of course, the Constitution. But to govern over the long term (7 years) without negotiating anything with the majority parties in a región which thinks itself a nation – as Borrell has just made clear – is a serious political error for which Spain has paid and could continue to pay. To say that it will go worse with Catalunya, which is true, is to forget the well known Spanish saying: “evil for many, comfort for the stupid”.


About the Author

Joan Tapia
Former editor of La Vanguardia, El Noticiero Universal and Spanish public TV channel in Catalonia, Joan Tapia also advised the Minister of Economy and Finance of Spain’s first Socialist Government. One of the country’s most veteran journalists, Mr Tapia also holds a Law degree and founded La Caixa’s Information and External Relations Department. He is a regular columnist for some media outlets both in Catalan and Spanish, and a member of the Royal Academy of Economic and Financial Sciences.