Will Spain′s new governing coalition succeed in triggering economic change? | Business| Economy and finance news from a German perspective | DW | 03.02.2020
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Will Spain's new governing coalition succeed in triggering economic change?

The country's fresh left-wing government faces huge economic and social challenges in the months and years ahead. It's clear that good intentions alone will not make political polarization go away just like that.

The image was historic. A few weeks ago, Pedro Sanchez was confirmed as prime minister in Spain's first coalition government since 1936, the year that the country's civil war broke out. The close vote kept the country on tenterhooks until the very last minute. But finally the self-proclaimed "progressive government" succeeded in reaching power.

Thanks mostly to their social promises, the Social Democrats (PSOE) and hard-left Podemos gathered enough support in the highly complicated parliamentary equation resulting from the elections last November, the fourth in four years. Tackling job precariousness, unemployment and inequality, reinforcing retirement pensions, fighting sexism, responding to the climate crisis and stopping the growing costs of living in many Spanish cities are among the issues to be addressed.

It sounds like a lot for a government that has severely struggled to secure a tight majority around a governing formula.

"One of the first challenges that this new cabinet will face is to impose its own agenda," Nacho Corredor, an independent analyst, told DW. "The political debate in Spain does not revolve around policies, but around politics," he said.

Socialist Pedro Sanchez is congratulated by Spanish far-left Unidas Podemos coalition leader, Pablo Iglesias after winning a parliamentary vote to elect a premier

Socialist Pedro Sanchez (left) and Pablo Iglesias from the far-left Podemos now have to prove that they can make progressive change happen

Public pessimism

Call it Catalonian secessionism, the crisis in Venezuela or ETA, the Basque separatist group that officially disbanded in 2018. The day-to-day problems of most Spaniards are often absent from the headlines and fierce political quarrels. Even Franco's exhumation last October, despite a strong sign against impunity and oblivion, was mostly a symbolic action that did not change the current situation for the victims of the dictator's regime and their families.

"I wish they would speak about us being unable to make ends meet," Sara, a 27-year-old freelancer in Madrid, said. Jose, 32, talks about how he and his partner would like to have children, but struggle to pay their rent in the capital. "Even my parents are worried about their retirement pension," this English teacher said. "I try not to think about who's going to pay for ours if there are fewer and fewer newborns. It makes me anxious."

According to a recent poll published by daily El Pais, 56.4% of Spaniards believe this will be a short and divisive term. More than 60% of them are of the opinion that the government will have little or no ability to tackle challenges such as unemployment, retirement age, the hurdles young people face to live independently or even the everlasting Catalonian crisis.

A picture of people lining up at an employment office in Madrid in search of work.

About 48% of Spaniards think that the new government will not be able to carry its lofty promises forward, which include resolving the country's ongoing jobs crisis

Months of political gridlock and economic uncertainty might have contributed to such a pessimistic feeling. And higher public expenditure can look complicated with decelerating growth, a structural government deficit at 3% and public debt at 96% of GDP.

But Raymond Torres, head of Economic Juncture at the Madrid-based think tank Funcas, believes that Sanchez' "strong economic team" still has a chance.

"The room for maneuver comes from the fact that there is space in the short term to reduce the deficit more gradually in order to facilitate meeting those social demands," Torres told DW. Yet there is always a price: "In return, they will have to commit in the middle term to more aggressive reductions in system imbalances."

Economic balancing act

In his special address at the World Economic Forum meeting in Davos, Sanchez reiterated his compromise to decrease the budget deficit and debt levels. At the same time, he has also acknowledged his intention to negotiate with the European Commission to potentially relax public deficit targets.

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In any case, the Spanish government seems to be determined to show that the coalition can make a difference. On January 30, the cabinet approved a 5.5% increase of the gross minimum wage to €1,108 ($1,222) a month. The agreement on this point with both the labor unions and the business associations is also a legitimacy shot for Sanchez: It means big firms are not that skeptical — or scared — of his hard-left partner anymore.

It was his second big social move in days, after having approved a decree raising pensions by 0.9% this year in a bid to ensure retirees "do not lose purchasing power." This increase will cost €1.41 billion in a one-off measure, according to government estimates.

Fighting unemployment, still at 14%, the second-highest in the EU after Greece, and job precariousness is "Spain's most pressing challenge," Gonzalo Garcia, head of economic consultancy at AFI, told DW. "The rest of the challenges are all somehow related to this one."

The new budget is not expected until the summer season, and its parliamentary negotiation will surely be politically complicated.

But Garcia also believes that, despite government plans being "perfectly reasonable," the main factor will still be how the economy develops in the coming months, especially when it comes to the job market. "What's important is that social policy and government revenue are sustainable in the long term."

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Burdening the better-off

Higher taxes on high incomes is one of the ideas on the table.

Consultant Nacho Corredor points out that besides moral or ethical reasons, there are economic grounds for this. "People with lower salaries mean lower public revenues, but also less purchasing power."

Read more: The secret to German retailer Lidl's Spanish boom

He quotes a recent study by the Spanish Youth Council, which revealed that young people need to spend 94% of their salary for renting an apartment. In 2008, it was 55.7%. The numbers show that the "lost generation" paid the highest price for the crisis, whether they ended up staying or leaving their country.

"This is unsustainable from a social perspective, but also in terms of economic stability," Corredor said. But will the government be able to paint a different future? He insists that it depends on what the agenda revolves around. Spaniards still do not matter that much in Spanish politics.

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