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Home News New Spanish PM has little room for social measures

New Spanish PM has little room for social measures

Published on 06/06/2018

Spain's new Socialist prime minister, who unveiled his cabinet Wednesday, has vowed to address the country's "social emergencies" but his lack of a parliamentary majority and EU budget rules leave him little room to act, economists say.

Pedro Sanchez, who ousted his conservative predecessor Mariano Rajoy Friday in a no-confidence vote in parliament, has listed low salaries and old-age pensions, job insecurity, the gender pay gap and public health cuts as issues he intends to tackle.

With no previous government experience, the 46-year-old economist is taking charge of a country whose growth has been higher than the eurozone average for the past four years but which still has its highest unemployment rate after Greece at 16.7 percent.

The eurozone’s fourth-largest economy has a deficit in its public pension system of around 18 billion euros ($21 billion) and just over one in four workers have temporary contracts, the highest rate in the 28-nation European Union, according to Eurostat.

And storm clouds are gathering on the economic horizon.

With the European Central Bank expected to raise interest rates and oil prices increasing “Pedro Sanchez will have to manage a scenario which in two years could be one of a slowdown in the rate of economic growth and the rhythm of job creation,” Emilio Gonzalez, an economics professor at the Pontificia Comillas ICAI-ICADE University, told AFP.

– ‘Headache’ –

“Sanchez does not have much margin for manoeuvre because he committed himself to executing the 2018 budget” of the previous conservative government while at the same time meeting the “public defict goal agreed with Brussels,” IE Business School economics professor Juan Carlos Martinez Lazaro said.

In what was seen as a message to Brussels that his Socialist adminstration is committed to eurozone budget rules, Sanchez appointed as economy minister Nadia Calvino who has since 2014 been the director general for budget at the European Commission.

Spain’s 2018 budget, which still needs to be approved by the Senate, includes a nearly 3.0 percent increase in public spending.

The previous government forecast the economy would grow by 2.7 percent in 2018 while the budget deficit would drop to 2.2 percent of economic output this year.

With just 84 seats in the 350-seat Spanish parliament, the “first headache” for Sanchez’s Socialist government will be to win “the approval of the expenditure ceiling, a crucial step in the preparation of the 2019 budget,” said Teneo Intelligence analyst Antonio Barroso.

Analysts predicted the parties which backed the no-confidence motion, such as far-left Podemos which has called for greater social spending and the tiny Catalan and Basque nationalist parties, will quickly start to make demands on the Socialists, who will likely have to call early elections.

Sanchez will have to carry out a “difficult political balancing act” to approve any measure, said Carlos Martin, the head of the economics department at Spain’s largest union, Comisiones Obreras, which is demanding higher wages and pensions.

It is planning nationwide protests with other unions on June 16.

– ‘Cosmetic’ –

When the Socialists in April presented an alternative 2018 budget, they proposed introducing new taxes on high income earners, banks and financial transactions to fund increased spending, including on pensions.

Spain has seen massive protests by pensioners in recent months demanding higher pensions.

“The problem is that these taxes provide very little revenue,” said Martinez Lazaro.

Raising other unpopular taxes such as income taxes “would be suicidal” for the Socialists, who are trying to win back voters lost to other parties in recent years.

Francisco Javier Velazquez, an economics professor at Madrid’s Complutense University, predicted the government will “do something more cosmetic”.

He does not think Sanchez will quash a 2012 labour market law reform, which made it easier to fire workers and which the left blames for increased job precarity.

Sanchez Wednesday appointed a high commissioner against child poverty. He is mulling an equal pay law.

“There are social gestures that can be made, but they must be accompanied by budgetary contributions,” noted Martinez Lazaro.