Spain’s governing Socialists have received backing from the radical left United Podemos to deliver hikes in the minimum wage and income tax on the rich. The deal makes it more likely that Pedro Sánchez’s minority government can get its budget for next year through parliament and stave off calls from the right-wing opposition to bring forward elections, which are next due in 2020. It raises hopes that the country could be embarking on a left turn after years of Conservative-led austerity policies.
But whether it results in anything concrete depends on Sanchez winning support elsewhere. The Socialists came to power in June following a vote of no-confidence in the previous administration of right-wing premier Mariano Rajoy and his Popular Party. But the Socialists have only 84 seats in the 350-seat parliament.The agreement with United Podemos gives the government support from 151 MPs for the budget. The PP and Ciudadanos parties together hold 166 seats in parliament, and have said they will vote against the budget, leaving Sánchez reliant on smaller parties to secure a majority. This will be tricky: the leader of Catalonia’s regional government, Joaquim Torra, has warned that pro-independence parties will not vote for the budget unless there is a referendum on independence from Spain. Madrid has said this is impossible.
Under the terms of the agreement with United Podemos, Spain’s monthly minimum wage would rise from €736 to €900. Income tax would rise for those earning more than €130,000 a year and there would also be an estate tax, higher taxes on businesses, measures to allow local governments to regulate ‘abusive’ rents and a cut in university fees. Already Sanchez has done other things to shift the government to the left. He’s restored universal health coverage, abolished under the PP, and has plans to deliver real terms increase in pensions. He’s also taken a more conciliatory line with the Catalan independence movement, opening up dialogue with its leaders, and approved the exhumation of the remains dictator Franco, which have lain in splendour in the Valley of the Fallen mausoleum near Madrid since his death in 1975. (An estimated 140,000 of his opponents lay in unmarked graves around the country, buried where they were summarily executed during and after the civil war).
Unlike Italy, Spain’s spending plans do not put him on a collision course with Brussels. The country has experienced three years of economic growth of 3 per cent or more (Italy’s economy, by contrast remains near-stagnant, a sad story that started with its entry into the Euro in the early noughties). So it doesn’t have the speculator’s threat of the bond “spread” hanging over it.
Spain’s finance minister, María Jesús Montero, has said that while complying with European rules, the proposed spending plans were “a clear change of course” away from austerity following the European debt crisis. That’s a nonsense – there is really no way to change course while complying with the EU’s self-defeating budget rules that exaggerate economic downturns, preventing governments to step in make up for a fall in private investment and consumer spending to stimulate growth and job creation.
Few EU countries – bar France – have risked the wrath of the bureaucrats and German government.
Italy’s treatment today – as in 2011 when bunga bunga PM Silvio Berlusconi was effectively ousted by the European Commission and the Frankfurt-based European Central Bank – and Greece is designed to bully EU governments seeking re-distributive, pro-growth policies in line.
The Portuguese case is a possible warning to any who get their hopes up too high about Spain. There a Socialist government has been sustained in power since November 2015 by the communists and another force – Left Bloc – to its left. But it’s achievements have been modest. Like Spain and Italy – where it’s 2.4% deficit target, to part fund a €10bn means-tested basic income for 6.5 million Italians is causing such a storm in financial markets – the Portugal government aimed above all to reduced poverty rather than mount any serious challenge to structures underpinning generalised austerity.
Lisbon increased public sector wages to pre-crisis levels and reintroduced four cancelled public holidays. Welfare for poorer families was increased. It also taxed the wealthy – a luxury charge was imposed on homes worth over €600,000 (£550,000). Yet draconian counter-reforms that have swelled a low paid, casualised labour market have not been reversed. EU budget rules are fully respected.
Some disgruntled communists and Left Bloc members have argued that this is in part the failure of their parties to hold their nerve rather than give in to the Socialist argument that it is them – or put the ConservativeSocial Democratic Party back into power. For many in the Portuguese Communist Party – unlike Left Bloc, in favour of EU-exit, in theory at least – it shows the limits imposed by Eurozone and EU membership.
What happens in Italy, run by a Euroskeptic coalition of the extreme right Northern League and its increasingly politically aligned Five Star Movement ally – matters most in Europe. Rome is for once conscious of this power, as the Eurozone’s third largest economy and largest debtor, is flexing its muscles. For Spain, much like other smaller less powerful western EU members like Greece and Portugal, fiscal disobedience is a fearful prospect.
So for now what’s happening in Spain is good news – but if it simply amounts to tinkering at the edges of austerity the risks are high that it will sooner or later run into the sand.