09 December 2015

Rajoy promises there will be no more cuts but EU Commission calls for further reforms

By Paula Martín Camargo, Editor

Spanish PM Rajoy was the big absentee in the first TV electoral debate in Spanish democratic history that included all the leaders whose parties are currently in the race for the presidency. Less than two weeks ahead of the General Election, Pedro Sánchez (PSOE), Albert Rivera (C’s – Ciudadanos) and Pablo Iglesias (Podemos), along with deputy PM Soraya Sáenz de Santamaría (PP), debated in a UK-US style TV encounter over the economy, corruption, the EU’s outlook for the  Spanish economy, Catalonia and the possibility of a coalition to run the country.

Sáenz de Santamaría was largely accused of being part of ‘the corruption party’, and her presence in the stage instead of that of her ‘boss’ Rajoy was deemed due precisely to corruption: “This is the reason Mr Rajoy is not here: he too received illegal payments,” claimed Rivera showing some newspaper covers that featured accusation about Rajoy. The deputy PM said everyone in her party was ashamed of the PP’s corruption record as well and had therefore launched the most important ‘offensive’ against this political blight. She argued that “the PP is a team; it’s not a personal project and anybody from the team could come to explain it” and tried to draw attention to the economic recovery of Spain and how the PP had handled the crisis and avoided a direct intervention by the European Union in the country’s economy. She also referred to the lack of experience in office of the new parties C’s and Podemos: “Talking is easy, governing is very difficult.”

As seen in previous articles, the most likely outcome of the 20th December election will be a coalition government and the emerging party C’s is seen in many polls as the key for the Moncloa (the presidential residence). Candidates were insistently asked about their preferences for a pact: none of them expressed their closeness to any of the options, but C’s leader Rivera said flatly that he wouldn’t back either the PP or the PSOE – he will try to form a government open to “independents and ministers from other parties,” but if he doesn’t succeed, he will just stay in opposition. Deputy PM Sáenz de Santamaría claimed Rajoy would govern only if PP was the most voted party “to respect the wishes of the citizenry,” and warned against ‘experiments’ - as Rajoy calls the new parties - and a “tripartite of losers.”

All four parties at odds in economics

There were important differences between all four on the most relevant issues – but economic policy was the one were an agreement seemed impossible to achieve. The most criticised proposal was that of the C’s single harmonised working contract, seen by the Socialists as a “free working contract” and a “hidden job market reform.”

On taxes, the deputy PM said Rajoy offered a “fiscal cut”, while Rivera argued he would lower all types of income tax. Podemos’ Iglesias instead wondered “who has to pay more taxes?” and PSOE’s Sánchez was adamantly clear that “taxes can’t be lowered, and whoever tells they can be cut is lying.”

The opposition leaders criticised harshly the cuts in education and health systems carried  out by Rajoy’s government: Rivera said that “what the PP has done isn’t reforms but cuts”. Sáenz de Santamaría defended the PP’s measures and said “there won’t be more cuts”.

Brussels asks for more cuts and deepening the labour market reform

But as Commissioner Moscovici warned in October, Spain’s 2016 Draft Budget submitted to the EU Commission is at risk of non-compliance with the deficit targets set for the next year – new cuts may be needed. The Commission is due to release its assessment of the Spanish economic situation this week in a report already seen by El País newspaper, and its conclusions head in the opposite direction to the message delivered by PM deputy Soraya Sáenz de Santamaría. The EU calls for further spending cuts if the government elected on December 20th is to meet the agreed deficit reduction targets, and asks for deeper job market reform to reduce the duality between temporary workers and fixed contracts. It is also critical of the government measures to stimulate employment.

The outlook - the last document the EU will publish on the Spanish economy before the Election and an end-of-term report on Rajoy’s performance - praises the PP government for its reforms after the 2012 bailout and recognises financial reform has been completed, but it warns that the banking sector is still weak.

Brussels reports that bad loans still account for 11% of the Spanish banks’ assets, and is concerned the sector might not be profitable. The EU also urges the government to speed up the privatization of Bankia and BMN and questions the increasingly uncertain future of Sareb, the bad bank that gathered all the lender’s toxic assets.

The opposition leaders have a view of the bailout that ‘rescued’ Spain three years ago far away from that of the Commission, and Sánchez and Iglesias called for a renegotiation of the conditions imposed by the EU on Spain once the election is over.

The plan for Catalonia

The four politicians said they are all for Spain’s territorial unity, but Podemos’ leader was the only one to support a referendum that would enable Catalans to decide their future. Rivera identified Ciudadanos - which was born in Barcelona and arrived second in the last regional elections in Catalonia with a message against independence and for constitutional reform - with the antidote to independents’ claims for secession from Spain.  Sánchez was in line with C’s position, saying that the 1978 Constitution needed a revamp before the issue could be solved. Sáenz de Santamaría was against this, calling for “respect for the Constitution” – she made it clear that Rajoy won’t support changes to the law to allow a referendum on Catalonia’s independence.