Madrid Closer to Striking a Budget Deal

Pedro Sánchez falls short of majority but will likely prevail tuesday

J.P. Marín Arrese | Budgets stand as the paramount evidence for any government that it commands enough legislative backing. Especially when the governments in question cling to a fragile minority in order to stay in power. The Spanish Cabinet ranks high in this category, its survival is balancing on the thin rope the pro-independence ERC party is ready to offer. The price of this offer is engaging an open-ended dialogue on self-rule for Catalonia, plus an amnesty for the sentenced leaders of the derailed coup attempt. Both sides acknowledge that negotiations will lead nowhere. None the less, this offers political ammunition to ERC for quelling resistance at home in providing a life-jacket to PM Sánchez.

The real problem lies in the bitter rivalry between the two leading separatist parties. In the last elections, the radicals held the upper hand confining ERC to a second-class ticket in the regional governing train. Mr Puigdemont, the leader of those opposed to any compromise, has bitterly attacked ERC’s lukewarm approach in a massive rally held in Perpignan over the weekend. Derailing the talks, he galvanized his followers by enticing them to continue fighting a low-intensity war for securing self-rule. Torra, his sergeant-at-arms and current president, seems ready to sabotage the talks with Madrid, aiming at undermining ERC’s advantage in the polls. As he retains full control on the time-table for the announced forthcoming snap election, he holds all the cards for inflicting damage to his ill-matched partners.

PM Sanchez can only hope this rift will not sap his efforts to maintain the talks afloat. Just enough time and breathing space for scoring a hit in the budget race. Sanchez has skillfully rushed to get approval for the expenditure ceiling both in 2020 and the year after. An unusual step, as such caps only cover the single incoming public accounts. By extending their time coverage, Sanchez openly recognizes the potential need to delay their approval for many months to come. In exchange, he secures a maximum spending target, thus preventing fiscal disarray.

It seems obvious that PM Sanchez can only expect to defuse the Catalan crisis by offering extra money. A move inevitably leading to similar claims by other regions. As the public coffers cannot accommodate a massive surge in expenditure, the cap stands as a useful toolkit to resist such pressures. The current deficit can hardly cope with the far-reaching reform in territorial financing all regions demand.

The ERC’s pragmatic strategy grounds itself on supporting Mr Sanchez while he is in power, the prospect of a right-wing Cabinet in Madrid sending shivers down their spine. Yet, the ERC enjoys a rather short slot in backing up the budget, by selling their achievement in forcing Sanchez to the negotiating table. Mr Torra will never yield such a considerable advantage to his rival party conceding an early call for elections. As talks rapidly stall, ERC’s voting chances will erode. Thus, only once the polls are over, ERC could materialize its budget support. Much will depend on how passions run ion election day. Yet, regardless of the outcome of the polls, ERC will presumably maintain its position and support PM Sanchez. Even in a worst-case scenario, Madrid can always roll over the current budget and survive. Badly shaken but still alive. And ready to take revenge on those blocking its policy agenda.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.