21/10/2011 - Analysis
On 29th July Prime Minister Jose Luis Rodriguez Zapatero (Socialist Workers' Party, PSOE) indicated that the early general elections would take place in Spain on 20th November next. This election is the seventh to take place early since the country's return to democracy in 1976. On the eve of this announcement Economy Minister Elena Salgado (PSOE) indicated that the country's budgetary deficit had decreased by 19% in comparison with the previous year, thereby confirming the government's progress towards bringing it down to 6% of the GDP (the deficit lay at 9.2% in 2010). Elena Salgado also stressed that unemployment that is affecting 20.8% of the working population (46.1% of the 16-24 year olds and 34% of the under 30's) against 8% in 2007, had also decreased by 0.3 points.
José Luis Rodriguez Zapatero had said that he wanted to remain in office until March 2012, the date initially set for the next elections, in the hope of reviving the country's economy. On 2nd April 2011 he said he would not be standing for a third term in office, hoping that this would provide the PSOE with a little more room to manœuvre. But the head of government finally had no other choice but to give into the pressure of the majority of the members of his party.
José Luis Rodriguez Zapatero says that he will leave his successor with "a country that is on the way to economic consolidation
". "In a situation that is still difficult, our economy is showing positive signs. We have laid the base for confidence,
" he declared. The early election was demanded by the People's Party (PP), the main opposition party. "A new government will have the people's confidence, which will already be an improvement,
" indicated PP leader, Mariano Rajoy.
On 22nd May the PP easily won the regional and local elections, inflicting a severe electoral defeat on the PSOE. The "small
" parties like the Union for Progress and Democracy (UPyD), the Basque regionalists of the Bildu-Eusko Alkartasuna ('Together' in Basque, Bildu EA) or the Catalans (Convergence and Union, CiU) also gained ground in these elections.
On a local level, the PP won, with 37.53% of the vote and 26,499 town councillors' seats against 27.79% for the PSOE and 21,767 seats, in other terms, the lowest score in its history since Spain's return to democracy. The PSOE lost 8 of the 10 towns with over 100,000 inhabitants that it held before the election including St-James' Way, Albacete, Leon, Elche, Jaen, Algesiras, A Coruna, Palma de Mallorca and Las Palmas de Gran Canaria. Conversely, the PP, which had 22 towns before 22nd May, won 11, including the 2nd and 4th biggest in the country, Barcelona and Seville. More than six Spanish in ten (63.97%) turned out to vote in the local election.
In the regional elections the PP emerged victorious in 11 of the 13 regions that voted. In the Asturias, the Asturias Forum (FAC), created after the scission of the PP won, and in Navarre, the Navarre People's Union (UPN), a rightwing regionalist party, came out ahead. Turnout totalled 69.8%.
"Early elections are good because they will put an end to uncertainty and restore confidence a little
" indicated Fernando Fernandez of the Higher Business School of Barcelona. The new government, with renewed legitimacy after the vote, should be able to take the necessary steps to revive the economy.
20th November is the day that Caudillo Francisco Franco, the Spanish leader, from 1939 to 1975, died. Those nostalgic of Franco's era rally each year on this date at Opera Square in Madrid to sing Francoist songs.
On 26th September Prime Minister José Luis Rodriguez Zapatero dissolved the Cortes generales (Parliament). The electoral campaign will be taking place form 4th to 18th November and the new Parliament will convene on 13th December next.
The Spanish Political System
Spanish Parliament (Cortes Generales) comprises two Houses: the Senate and the Congress of Deputies. 300-400 MPs are elected every 4 years by party-list proportional representation (the Hondt system with closed and blocked lists) within 48 of the 50 of the Spanish provinces (except for Ceuta and Melilla). Each of them chooses at least two deputies (one only for Ceuta and Melilla), the rest being spread between the provinces depending on the size of the population. A list has to win a minimum of 3% of the vote to be represented in the Congress of Deputies.
The Senate, the upper Chamber, comprises 208 members elected by universal suffrage (provincial senators) and 49 representatives appointed by the 17 autonomous communities (community senators). Each province elects four provincial senators whatever the population size except for Ceuta and Melilla, who appoint two and the Balearic Isles and the Canary Islands, the major islands of which (Gran Canaria, Majorca and Tenerife) each choose three, and the smaller ones (Ibiza-Formentera, Minorca, Fuerteventura, Gomero, Hierro, Lanzarote and Palma), choose one senator each. In addition to this each autonomous community elects one community senator as well as an extra one for every million inhabitants.
This system fosters the development of the least inhabited areas. The senatorial elections take place on the same day as the ones for the Congress of Deputies. The election is run according to party-lists except on some islands. In all, the upper chamber comprises 264 members. The law on equality, approved in April 2007, prohibits any list from putting forward more than 60% of the same sex in any type of election.
10 political parties are represented in the present Congress of Deputies:
– The Socialist Workers' Party (PSOE), founded in 1879, led for many years by outgoing Prime Minister José Luis Rodriguez Zapatero, who was replaced last summer by Alfredo Pérez Rubalcaba, has 169 seats;
– the People's Party (PP), the main opposition party, created in 1977 and led by Mariano Rajoy, has 154 seats;
– Catalonia Convergence and Union (CiU), a Catalan nationalist electoral alliance created in 1978 alliance, led for many years by Jordi Pujol, is now led by Artur Mas, with 10 seats;
– The Basque National Party (PNV) created in 1984 and led by Inigo Urkullu, has 6 MPs;
- The Catalonia Republican Left (ERC), founded in 1931, lies to the left of the political scale and is chaired by Oriol Junqueras i Vies, with 3 seats;
– The Galician Nationalist Bloc (BNG), created in 1982 and led by Guillerme Vázquez, with 2 seats;
– The Canaries Coalition (CC), a nationalist party led by Claudina Morales, has 2 MP's;
– United Left (IU), a leftwing electoral alliance founded in 1986 and led by Cayo Lara Moya, has 2 MPs;
– Union, Progress and Democracy (UPyD), created in 2007, clearly against the armed terrorist organisation Euskadi ta Askatasuna (Basque Country and Freedom, ETA in Basque,), has one seat;
– Yes to Navarre (NB), a coalition of parties (left and right) that is working for Navarre's annexation to the Basque country, has one seat.
The PSOE holds the majority in the Senate, where it won 101 seats in the last general elections on 8th March 2008. The PP won 88; the Calatan Alliance for Progress that rallies the Catalonia Republican Left, the Catalonia Socialist Party (PSC) and the Catalan Green Initiative (ICV) 12; Catalonia Convergence and Union, 4; the Basque Nationalist Party, 2 and the Canaries Coalition, 1.
56 senators were elected by the autonomous communities.
A country on the edge of the precipice
As of 2008 the collapse of the real estate bubble which had guaranteed the Spanish economic boom for decades, together with the international economic crisis, took Spain into a severe recession. In 2011, the European debt and euro zone crisis slowed economic recovery even more.
The country has between 700,000 and 1.5 million unsold, empty lodgings. The real estate market, like the rest of the Spanish economy, lacks funding which makes a return to growth extremely difficult. The recent measure to reduce VAT by 50% (from 8% to 4%) on the purchase of any lodging, experimented with over the last four months, seems to have had no significant effect on the real estate market. The PP is promising however to extend this measure beyond the December deadline.
For a long time the PSOE tried to minimise the country's socio-economic situation before imposing a sudden austerity policy. At the beginning of the crisis, Prime Minister José Luis Rodriguez Zapatero was extremely optimistic. During the general elections of March 2008 he was re-elected as head of State and promised full employment. Three years later he is the most unpopular head of government in Spain's history. "If José Luis Rodriguez Zapatero wants to do his country a favour he should give up his post as soon as possible,
" read an article in the daily El Pais recently. "We are inheriting the worst situation ever left by one government for the next,
" declared Mariano Rajoy.
In the spring of 2010 the government introduced a three year austerity plan aiming to save 50 billion € by 2013 and to bring the public deficit, together with the local communities' and the social security debt, that in 2009 lay at 11.2% of the GDP, down to 3% in 2013. Amongst the measures adopted were cuts in social aid, the freezing of retirement pensions (except for the lowest levels) and a halt to new jobs in the civil service, a decrease in public investment, a raising of the legal retirement age from 65 to 67 years, privatisations, a 5% decrease in civil servants' salaries in 2010 and a freezing of the latter in 2011, the abolition of the 426€ allowment paid to the unemployed, who were no longer eligible to benefits, together with the abolition of the maternity cheque of 2,500€ paid for every new birth and a two point increase in the VAT (rising from 16% to 18%), in other words, this was might be called shock treatment. "That was the day I cut the umbilical cord with the progressive electorate,
" said José Luis Rodriguez Zapatero speaking of 12th May 2010, when the government's draconian measures were announced.
One year after these measures were taken, Spain is still caught up in turbulence and remains under the close surveillance of the financial markets. In the spring hundreds of thousands of young Spaniards rallied together on an on-line platform called Democracia real ya (Real Democracy now) before deciding to occupy the main squares in many of the country's towns; on 20th May the internet site declared that 175 squares were occupied, rallying 60,000 people in all, 20,000 of whom were in Madrid. "Yes we camp
" shouted the young demonstrators in reference to Barack Obama's slogan during his presidential campaign in 2008. The Movimiento 15 M (15th May Movement), the name given to this movement, rallies the unemployed (some of whom no longer have the right to anything), civil servants, and also the employed (many of them in precarious situations), students who baptised themselves the "indignados
" (the indignant).
Young Spaniards represent both the best educated and the best qualified generation in all of the country's history and the one which integrates the least into society – this has reached a point that some people have spoken of the "destruction of a generation
". Most of them have temporary jobs (most are on limited contracts) and earn very low wages (they are called the mileuroistas, people earning around 1000€), which contributes to their inability to find any kind of lodgings. They all have the feeling that they are not being heard or represented by the political parties. Their movement is an example of direct democracy organised outside the realm of the parties and the unions.
"I have a great deal of respect for those who are demonstrating, which they are doing peacefully, and I understand that this is due to the economic crisis and their desire to find work,
" stressed Prime Minister José Luis Rodriguez Zapatero, who added that if he had been a few years younger he would probably have joined them. "They are impatient, I understand that, but we are on the path to reform and we have to improve,
" he concluded.
At the end of August the government announced a further plan to save 5 billion €; the aim is to bring the public deficit down to 6% by the end of 2011, by reducing healthcare spending and by undertaking a reform on the payment of company tax whose total rises to over 20 billion €. This plan comes in addition to the first measures adopted in 2010, which planned to save 65 billion € over 3 years. It will enable companies to extend the employment of salaries on temporary contracts by two years. "The two year rule which makes it obligatory to transform temporary jobs into unlimited contracts has been suspended,
"declared Employment Minister Valeriano Gomez (PSOE). The government also re-introduced the 400€ allowance paid to the unemployed who have come to the end of the benefits rights. A new training contract of 1 to 2 years, together with a 100% dispensation of social security contributions for the duration of the contract in the event of a job seeker being taken on, will also enable young people (or the not so young) to train and work at the same time. Other measures such as the widespread use of generic medicines aim to bring in at least 4.9 billion € into the State coffers.
In September Spain adopted by 319 votes in support, 17 against, a golden rule, i.e. the inclusion of a limit to the country's public deficit in the Constitution. In Spain any revision of the Fundamental Law has to be approved by a 3/5th majority of the MPs. The vote in support, on the part of the PSOE and the PP, was enough to enable the adoption of the golden rule. The small parties criticised the reform, and, notably, its rather rapid adoption.
The text sets the maximum total of the administrations' global structural deficit at 0.4% of the GDP as of 2020. The State deficit should not rise above 0.26% of the GDP and that of the autonomous communities, above 0.14%. Finally, local authorities will have to put a balanced budget forward. On 27th September a ceremony was organised at the royal palace of Zarzuela during which the Prime Minister Zapatero and King Juan Carlos ratified the reform of article 135 of the Spanish Constitution. An organic law still has to be adopted before 30th June 2012.
Finally also in September the government decided to re-introduce a wealth tax which had been abolished in 2008. This generated €2.1 billion in 2007. Its threshold was raised to €700,000 (that of the main place of residence was doubled and now totals €300,000). This new tax should affect 160,000 people and bring in €1.08 billion. The Spanish regions that received financial compensation from the State (equal to the amount taken in 2007) since the abolition of the wealth tax in 2008 will continue to receive compensation.
At the beginning of October the government decided to inject €7,551 billion in public funds into 4 savings bank, an intervention which marked the end of the recapitalisation process -undertaken mainly using private funds- which started in 2009. In two years the regional savings banks, considered to be the weak link in the Spanish system, have merged and their number reduced, dropping from 150 to 45. They were also made professional, with most of them transforming into traditional trading banks.
The government has delayed the privatisation of the airports of Madrid (Barajas) and Barcelona (El Prats) planned for the autumn, a decision that is depriving the State of €5 billion in revenue. Seven investors have shown their interest in the operation, including the German airport company Fraport and Spanish groups, Acciona and Ferrovial. In September the government delayed its project to float the National Lottery on the stock exchange.
At the beginning of October the ratings agency Fitch took Spain's rating down a notch (from AA to AA-). The agency justified itself saying that there was "an uncertain growth outlook for the country contrasted against the need for the private sector to have access to external funds.
" It believes that "the quality of the assets of the Spanish financial system continue to worsen,
" and it deplores "the incomplete reform of the employment market
" which continues to impede economic recovery and indicates that Spain is facing "growing risks
" because of its high unemployment rate and an increasingly difficult financial environment, and also because of the danger of economic slowing amongst its main partners. Five days later, Standard & Poors also downgraded the ratings of Barcelona and the region of Madrid (from AA to AA-). On 18th October Moody's downgraded Spain's sovereign rating from Aa2 to A1 with a negative outlook. The agency has justified its action saying that the country continues to be "vulnerable to market tension
" and that "its economic growth is only due to reach 1% at best next year.
On 15th September Fitch also downgraded the rating of five regions, Moody's downgraded six: Catalonia, which represents 1/5th of the country's GDP, Castilla la Manche, Murcia, Valence, Andalusia and Castilla-and-Leon, Catalonia, the region of Madrid, Valence and Andalusia represent two-thirds of the country's regional debt which totalled €115 billion at the end of 2010, i.e. 10.9% of the Spanish GNP. 12 of the 17 country's regions did not achieve the 1.3% deficit goal of the GDP set by the government, which does not have any real means to put pressure on the regions from this point of view. The total debt of these regions together lies at €121 billion.
"The government's macro-economic forecast is not realistic
" says Estefania Ponte, Strategy and Economy Director with Cortal, the bank specialised in savings and on-line brokerage for private parties and which is also a branch of BNP Paribas. It forecasts growth of 2.3% whilst it will total 1-1.5%. Ratings agency Standard and Poor's based its analysis on growth forecasts of 0.8% (and 1% in 2012), a result lower than the one forecast 8 months ago (1.5%). "We think that the government may miss its budgetary goals because of excess spending by local and regional governments and the social security, in spite of a reduction in the central government's budgetary deficit that was more than planned,
" stressed the agency. The latter is forecasting a central government budgetary deficit of 6.2% of the GDP in 2011, i.e. in line with the 6% forecast made by the government. "We do think however that additional measures will be necessary to reach the goal of 4.4% of the GDP in 2012,
" says Standard and Poor's, which is forecasting a 5% deficit of the GDP.
José Luis Rodriguez Zapatero, who was forced to withdraw due to the seriousness of the crisis after two terms in office as head of the country, was replaced last summer as the head of the PSOE by his Deputy Prime Minister Alfredo Pérez Rubalcaba. Appreciated and respected, the latter is close to the head of government. He was replaced in turn by Antonio Camacho.
On the 9th July, on his investiture, Alfredo Perez Rubalcaba promised "greater austerity
" and pointed to the imperative need to create jobs. The new PSOE leader hopes to establish a tax on banks and profit. "We have given money to the banks to help them restructure, now they have to devote some of their profits to creating jobs. I suggest we ask the savings banks and other banks to devote some of their profit to this.
" The socialist candidate for the post of Prime Minister wants to implement a re-distribution policy, "it is time for those who have suffered the least because of the crisis, to help those who have suffered the most,
" he declared. "The banks can wait, not the young people,
" he added, increasing his calls for the "Indignado
" to join him. Alfredo Pérez Rubalcaba supports taxing the wealthiest and hopes to see the Spanish public deficit reduced to 6% of the GDP this year, in order to bring it under the 3% mark in 2013.
Victory forecast for the People's Party
After two failed attempts (in 2004 and 2008) the PP is now running favourite in the general election on 20th November next. Its leader Mariano Rajoy, who is not very popular amongst the Spanish, unlike Alfredo Pérez Rubalcaba, who is believed both more effective, experienced and more open to dialogue, should be appointed Prime Minister. The vote for the main opposition party will be related more to a rejection of the socialists than to an affection for the PP.
On 20th July last Francisco Enrique Camps Ortiz (PP) resigned from his post as chair of the region of Valencia to which he was re-elected on 22nd May last in the regional elections. He is suspected of having received bribes (to a total of €14,000) from a network of companies that monopolised public procurement markets in the region. The investigation, undertaken by Judge Baltasar Garzon, revealed a network of corruption led by Francisco Correa, a company head close to the PP, who was used as an intermediary by real estate companies and opposition MPs, for the attribution of state contracts in exchange for bonuses and gifts (Francisco Enrique Camps Ortiz is said to have received some). His trial is to open in the autumn. He was replaced as head of the region of Valencia by Alberto Fabra.
A close colleague of Mariano Rajoy, Francisco Enrique Camps Ortiz supported the latter when he had problems being re-elected as head of the PP in 2008. He said he would resign if there were early elections so as not to compromise the electoral campaign. "I am sacrificing my position so that Mariano Rajoy can be the head of government,
" he declared.
The PP's programme is focused on four points: the creation of jobs, the economy's return to health and competitiveness, the enhancement of equality opportunities and democratic reform in response to social demand. It is promising to create 3.5 million new jobs, mainly by re-organising the fiscal system (notably by reducing taxes for people who want to create a business). "Spain can emerge from the crisis and will do so
" declared Mariano Rajoy, who recommends "an orderly economic policy, based on austerity and reform that encourages company heads.
" "We want to defend social cohesion, the Welfare State and public services but with good economic management. The civil service will not be able to spend what it does not have,
" he said.
From an economic point of view, Mariano Rajoy has announced three main axes: a 5% reduction in taxes on SME's, a business plan to stimulate demand and to reduce bureaucracy and the capping of regional spending (with the obligation of budgetary balance). On this point Mariano Rajoy recalled that the governments led by José Maria Aznar (1996-2004) had allowed no deficit on the part of the autonomous communities and he accuses the socialists of having made the fundamental mistake of abolishing this measure. He announced further austerity measures saying that he "had no intention of reducing social spending
" and that he was not planning to increase taxes either. He is recommending the introduction of a single employment contract, is against the reintroduction of the wealth tax and also the privatisation of the national lottery; he is also against the privatisation of the two main airports in the country, accusing the socialist government of having launched into a rather hurried operation to sell off major assets at low prices in a financially unprofitable situation.
Sacrifice, merit, tenacity and the respect of authority and discipline are the values the PP leader likes to promote. He is relying on the confidence the general elections will give him in order to implement his programme. "This (future) government will cast its net wide and will enjoy the country's confidence,
" he repeats, without forgetting to say that all Spaniards will be "obliged to make a major effort in the future.
The most recent poll by Metroscopia for the daily El Pais reveals that the People's Party (PP) enjoys a comfortable lead over the PSOE. It is credited with 45.5% of the vote whilst the PSOE is due to win 29.7% of the vote. The United Left is due to come third, winning 7.6% of the vote, Union Progress and Democracy 4.5% of the vote. Seven Spaniards in ten (70%) say they are going to vote on 20th November next.