One would be forgiven for thinking that a sense of normality may be returning to Spain following a calming of the rhetoric coming from separatists in Catalonia.
But on 1 June, Mariano Rajoy – Prime Minister since 2011 – was hit with a vote of no confidence and subsequently resigned his post. By 5 June, he had also stood down as leader of the People’s Party (PP), meaning that in the course of just a few days, a long-time veteran of the Spanish political scene had all but disappeared.
This sudden turn of events was all the more surprising considering its relative rarity: this was only the fourth such vote in Spain’s democratic history and the first to be successful. Such a motion in Spain must be ‘constructive’ – meaning that the mere removal of the current leader is insufficient; rather, an acceptable alternative prime minister must also be present. Step forward Pedro Sánchez, leader of the Spanish Socialist Workers’ Party, who deftly assembled an unlikely cohort of opposition parties – including the left-wing populist Podemos, Catalan nationalists, and Basque nationalists – to oust Rajoy.
But although the change in government was shocking and swift, its roots lay in a corruption scandal that has been rumbling along for years. A long-running investigation unveiled a system of kickbacks paid to the PP following the awarding of public contracts; kickbacks which were then used as a fund for the party. In late May, former PP Treasurer Luis Bárcenas was sentenced to 33 years in prison, and the party itself, which Rajoy presided over, was also fined.
‘In this case, nobody expected the severity of how strong the ruling was against the PP – and the media coverage of the ruling – which created huge pressure on opposition parties to move,’ says Antonio Barroso, managing director and deputy director of research at Teneo Intelligence.
‘It created a situation where opposition parties actually had to push back – at some point the opposition parties decided that the political cost of not kicking Rajoy out would have been too high.’
Tough at the top
Despite arriving at the crest of an opposition protest wave of his own making, the newly installed Sánchez appears unlikely to be set for an easy ride heading the government.
‘The result doesn’t mean that the group of parties that supported the decision to kick Rajoy out explicitly endorse Sánchez. I think it was more a coalition to throw Rajoy out, rather than to put Sánchez in,’ explains Barroso.
With just 84 deputies in the country’s lower house, the Congress of Deputies, the new Prime Minister is at the helm of a minority administration that will need to leverage support from other parties in order to govern – no mean feat for a socialist.
‘I think the biggest challenge for the government is to try to get Congress to approve any new statute. Based on how they gained power, it’s going to be very hard for them to reach agreement in Parliament,’ says one Spanish GC from the banking sector.
‘Whether or not he wins the next election will be a consequence of the next two years, so I believe that he will not take any unpopular decisions – I would assume he wants to do popular things so that he can get into power.’
As a centre-left-leaning premier, Sánchez will be looking to appeal to both sides of what has been a fragmented left in recent years.
‘He’s certainly not a radical. But on the other hand, there’s a big split within the PSOE, between the much more centrist position, which Sánchez opposed. Sánchez was in favour of the Socialists trying to make a left alliance [ie with Podemos],’ explains Dr Jonathan Hopkin, associate professor of comparative politics at The London School of Economics.
‘So there is this battle within the Socialist Party between the ones who want to do what the German Social Democrats have done and prop up a centre-right government, and those who would prefer to create a kind of left front – and Sánchez is on the latter side of it.’
Early signs are that the Sánchez government is hardly a left front, however.
‘If you look at the cabinet that Sánchez is composing right now, it’s actually quite centrist, even having some people who have been close to the PP in the past,’ says Barroso.
‘He has put as the Economy Minister one of the top civil servants at the European Commission [Nadia Calviño, former EC Director-General for Budget. Appointing someone like her sends a strong message to the rest of the government and across the EU.’
During a period when the European Union is undergoing perhaps its largest crisis of confidence since its inception, as Brexit remains a going concern, the rise of Sánchez will likely provide a welcome contrast to growing Euro-scepticism across the continent.
‘Sánchez is a pro-European politician. All eyes are on Italy at the moment, nobody is seeing Spain as a big risk and Sánchez is not a populist horror challenger,’ explains Hopkin.
Fiscally fit
The reality is that achieving anything resembling consensus among his erstwhile no-confidence motion backers will likely be a struggle when it comes to fiscal policy. The new government has agreed to implement Rajoy’s budget (upon which the ink was still wet at the time of his removal), buying the new PM some time before having to hold fiscal negotiations of his own.
However, Eurozone governance following the financial crisis – in which Spain was particularly hard hit – means a fast-approaching deadline for passing the ‘expenditure ceiling’, which establishes public spending. Sánchez is likely to be caught between a rock (those, like the PP and the centre-right Ciudadanos, calling for fiscal discipline) and a hard place (anti-austerity left-wingers, Podemos).
Even on budgetary issues, there could be stumbling blocks. The PP has hinted at causing trouble in the upper house (the Senate), where it retains a majority.
Earlier in June, Reuters reported that, due to anger at budgetary concessions made to the Basque Nationalist Party – which then supported the removal of the administration – Rajoy stated that ‘We could foresee much more instability, more political obstacles, than there were and more difficulties in running the country.’
Should the current budget pass with no issues, the next one is likely to prove more problematic, with the process for the new budget beginning as soon as this autumn.
‘Minority governments in Spain usually fall over the budget, and so that might be an obvious point at which the government will be looking at new elections early next year,’ says Hopkin.
With support of any legislative agenda far from assured and a rocky path ahead to a political consensus on major issues, the likelihood of a lengthy tenure remains minute – heightening the chances of an election in the near future.
‘I think it’s more likely that Sánchez is going to try and use being Prime Minister to raise his profile; to try to get the PSOE back to being the more prominent party on the left, because they’re currently polling around the same as Podemos,’ says Hopkin.
‘Trying to revive the Socialists’ status as the main party of the left and trying to then get into the next elections on a stronger footing is probably the most reasonable objective that this government can have.’
The business community
Interestingly, the weakness of the new government could prove reassuring to the business community, as a lack of authority appears likely to stymie any policy agenda that could cause turbulence.
‘In every political change there is risk and there is opportunity, and I think the business community in Spain knows this and is able to establish good relationships with both the centre right and the centre left,’ says Barroso.
‘I think the business community would have been much more concerned if we had the presence of a party like Podemos in the government.’
The relaxed approach by business to what, in many jurisdictions, would be considered intolerable levels of uncertainty, speaks to Spain’s recent history – where uncertainty has been a cost of doing business.
‘I think the business mentality has not changed with the change of government. Spain has been in a very good business period where real estate and technology are keeping transactions and the growth of the economy up,’ says one prominent Spanish general counsel.
‘I would say that there is a little caution in wordings of internal decisions taken. But, overall, I think nothing has changed in terms of stopping transactions or avoiding business.’
But there are issues that appear likely to rear their heads during this premiership.
Following proposals from the PSOE earlier in 2018 for a hike in corporate tax rates on banks in order to shore up the country’s pensions deficit – tax is certainly likely to be on the agenda, a tough task to take on considering the tenuousness of Sánchez’s position.
‘In order to institute new taxes, you need to pass a law, so Sánchez will need to find consensus in Parliament,’ says Barroso.
Reforms implemented by the PP in 2012 made the issue of collective bargaining one of its key planks – including a measure to decentralise collective bargaining, prioritising agreements made at the firm level over those made across sectors, as well as making legislation on the dismissal of employees more flexible. The reforms at the time triggered a general strike, with criticism from the left of the political spectrum, including Podemos and the PSOE, raising the spectre of a potential rollback of some sort.
‘We’ll see if, after any reforms, business has to adapt – but I think there has not been any particular change in the business mindset based on the change,’ says one Spanish GC from the banking sector.
‘I think there is still some space to introduce smaller reforms, like perhaps raising the minimum wage, or some measures affecting businesses that have not been regulated, like Airbnb.’
The aftermath of scandal
With a tarnished brand resulting from the fallout of the corruption scandal, including an ousted leader and the loss of power – how the PP responds over the coming two years stands to be a factor likely to shape Spanish politics exponentially longer.
‘Now comes a process of leadership renewal that is not going to be smooth for the PP, but I think it’s very necessary, because it hasn’t renewed its leadership for a long time,’ says Barroso.
‘One of the things that they can do is bring forward a younger generation of leadership that makes it easier for the party to disconnect themselves from the previous cohort.’
But the PP is not the only Spanish party to be tainted by allegations of corruption. Embarrassingly, after just a week in post, Màxim Huerta, a Sánchez-appointee to the ministry of Culture and Sport, resigned after it emerged that he had previously been fined over tax avoidance.
Contention Set to Continue in Catalonia
The issue of Catalonian independence stands to be a major thorn in Prime Minister Pedro Sánchez’s side – just as it was for his predecessor.
When the Catalan Parliament declared independence last October following a regional referendum – declared illegal by Spanish authorities and boycotted by Spanish nationalists – it triggered spectacular scenes in Spanish politics.
‘The days when the Spanish government made the problems with Catalonia even worse are over,’ proclaimed Sánchez in an interview with Spanish newspaper El País.
Support of Catalan nationalists played an important role in the appointment of the new government, but if they were hoping that a new Prime Minister would legitimise an independence bid by approving another referendum, they appear set to be disappointed.
‘The arrival of Sánchez has put the Catalan project in a difficult spot. Rajoy was a perfect enemy because he was under pressure from Ciudadanos to pursue a hard line on the Catalan nation and not to make any concessions,’ explains Antonio Barroso, managing director and deputy director of research at Teneo Intelligence.
‘Now the separatist movement has someone that is saying, “Listen, I’m willing to talk”. But what are they going to ask for? They know that a referendum is impossible and it’s much more difficult to justify behaving unilaterally when you have someone like Sánchez in Madrid.’
Despite the new leader’s apparent willingness to engage in dialogue, he might attempt to have his cake and eat it. The appointment of Meritxell Batet as minister with responsibility for regional affairs, a Catalan member of the Socialists’ Party of Catalonia and a seemingly conciliatory presence, might placate separatists. But that of Josep Borrell as foreign minister, a strident anti-independence voice, is potentially a boon to those in opposition.
‘I don’t think there is much that Sánchez can promise that will satisfy hard-core nationalists. The best way of managing the situation is to offer some kind of concession on issues such as funding, and mutual recognition, which is: meet the Catalan independence movement in the middle,’ says Barroso.
‘That’s is probably what Sánchez will try to do. But it’s tough, because even on that front, [the anti-independence] Ciudadanos has to go in a very tough way against him.’
The end game for Sánchez could be more about bolstering his party among anti-independence Catalans.
‘The PSOE in Catalonia has lost a lot of ground in the last few years, and a lot of those votes have gone to Cuidadanos, which has a very virulent anti-independence discourse. So by putting Borrell there, it gives the party a chance to align more with this anti-independence position and potentially to win back some votes from Cuidadanos,’ explains Dr Jonathan Hopkin, associate professor of comparative politics at The London School of Economics.
‘It makes it harder, probably, to reach agreement with the Catalan independence parties. But I don’t think they are necessarily that worried about that and I think the party is more keen on trying to win back its position as the main party for non-independence Catalans, which is what it was for a very, very long time.’
Even a change in tone could be welcomed by the battle-fatigued corporate sector in Catalonia, which has seen the withdrawal of many businesses from the region.
‘What the business community wants to see in Catalonia is a regional government that focuses on the economy and everyday issues – of course, the issue of independence has hijacked the policy agenda over the past five years,’ says Barroso.
Adds Hopkin: ‘In parts of Spain, there remains substantial hostility towards Catalonia and their bid for independence, so a more pro-dialogue approach from Madrid might be received badly in parts of Spain, while not doing enough to earn the support of nationalists in Catalonia.’
With so many factions, by trying to please everyone, Sánchez could end up pleasing no one – and losing congressional support in the process.
‘Political corruption tends to be one of the top concerns of voters according to public opinion surveys, together with unemployment and the economy,’ says Barroso.
‘It’s one of the reasons why you have seen fragmenting of political parties so considerably in the course of the last few years. I would say corruption is the backdrop to the political change that we’re seeing in Spain.’
But after so many years of malfeasance and salaciousness at the highest levels of Spanish politics, others are more keen to turn their gaze towards the future, rather than reliving the past.
‘The corruption happened many years ago now and it is the political consequences of that past corruption that we are only just seeing. People in the business community knew that some judicial and political consequences might arise and indeed they have arisen,’ says one prominent Spanish general counsel.
‘But this is not something new, and it was well known that they might trigger a change in the government. I think the fact that the new President has appointed very European, technocratic and well-known people supports the idea that really, it would be for good.’
Whether the fledgling government can hold on to its tenuous grip on power, walking a line between pleasing both the established and populist forces at work in Parliament, remains to be seen. If not, the onus will be on the electorate – a voice so far unheard in this drama – to decide what the future holds for Spain.