By: Sebastian Mariz, Managing Director of Influence Spain
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Political stability
Prime Minister Pedro Sánchez has carried out his fifth and probably last Government reshuffle with changes to the ministries of Healthcare and Industry and Tourism, with the appointment of a new Minister of Healthcare, José Manuel Miñones and a new Minister of Industry, Hector Gómez. These changes were made in order to allow the former Industry and Healthcare ministers to run in the regional elections of Madrid and the Canary Islands. No changes were made to the ministries run by the junior partner in the coalition, despite growing public disapproval over the policy decisions taken by the Minister for Equality and the Minister for Social Affairs, on sexual rights and feminism and the clash between these ministers and members of the socialist party, during the international women’s day celebrations on the 8th of March.
The new Minister of Industry, Hector Gómez, a seasoned socialist member of parliament for the Canary Islands and former socialist party group spokesman in Parliament for a short time, inherits a policy agenda with important projects that are either already underway or in the pipeline. These include both tourism and industry modernization with digitalization plans financed under EU recovery funds. These have important implications for the tourism sector, including hotels, in the Canary Islands, and ambitious targets to digitalize Spain’s heavy industry and create a competitive and dynamic microchip industry.
The Minister of Healthcare, José Manuel Miñones, another seasoned politician and former central Government Delegate in the region of Galicia in north-western Spain, also inherits a busy agenda for the rest of the year and a constructive and cooperative relationship with the regional healthcare authorities. His main focus will be on the adoption of several pending draft laws on tobacco use, primary care, the creation of a National Agency on Public Health, Equality and Cohesion under the Spanish NHS, and implementation of the 5P Plan and its objectives of modernizing and digitalizing the Spanish NHS. During his mandate, he may also have to Spain’s position on proposed changes to the authorization, pricing and reimbursement of orphan drugs, by the European Medicines Agency.
In addition to these changes to his Cabinet, the Prime Minister has also faced a failed proposed vote of no-confidence, tabled by the opposition far-right Vox party at the end of March, and the official launch of a new political platform, Sumar, by his second Deputy Prime Minister and Minister of Employment, Yolanda Díaz.
The proposed vote of no-confidence was rejected by a majority of 201 MPs, and only obtained favorable votes from 53 Vox MPs and 91 abstentions from the main opposition political group, the Popular Party. This helped bolster support for the Prime Minister, his Government and his policy and legislative agenda over the past three years, both amongst political groups and the general public, and helped isolate the far-right and the main opposition party, the Popular Party (PP). Polls held immediately after the failed proposal, show that a majority of voters felt that the Prime Minister had won the parliamentary debate on the proposal and that it had proved detrimental to the political interests of Vox. A majority of voters also considered the proposed vote of no-confidence to be irrelevant and misplaced at this time.
The proposed vote of no-confidence not only served to cement support for the PM in the Parliament, it also served as a trigger for the official launch, of the new political platform, Sumar, under the leadership of the Employment Minister, Yolanda Diaz. Labelled as a historical moment in Spanish politics by the Minister herself, the launch of her new platform was met with rapacious rejection from Unidas Podemos and several junior ministers in the Government. Despite her calls for unity, both the current leader of Unidas Podemos, Ione Belarra and its founder, Pablo Iglesias, refused to commit to running in the general elections as a single platform and under a single candidate list. Instead, they will compete with Yolanda for votes and voter support in the far-left. This situation is expected to benefit the Prime Minister, who has built a relationship of trust with the Employment Minister and prefers to have to form a new coalition government with her, than with Unidas Podemos, if he wins the general elections on the 10th of December.
General polls on voter tendencies following the politically active month of March, that were held over the Easter weekend, show that if general elections were held today, Sumar would come in fourth position, with 11.8% of the votes, or 28 to 30 seats in Parliament and Unidas Podemos would come in fifth or sixth place, with 5.1% of the votes and between 3 to 5 seats, down to 30 from the 35 they currently have. Vox would remain in third position, with 13.8% of the votes, or 41 to 43 seats, down 10 seats from the 52 it currently has. The PM and his Socialist Party would come in second position with 21.9% and 89 to 91 seats, regaining some of the lost ground to the conservative Popular Party (PP) who remain in first place with 33% of the votes and between 142 to 144 seats in Parliament. If these polls were to hold true until the beginning of December, the PP would be able to form a coalition government with the far-right and would likely seek additional parliamentary support from the Basque Nationalist Party, the PNV, and the Catalan conservatives, Junts.
At a regional and municipal level, the polls continue to show that the Premier of Valencia, the socialist Ximo Puig will manage to hold on to his coalition government with the greens, Compromìs and the far-left, Unidas Podemos, as will the Premier of Madrid, Isabel Ayuso, most likely in a reedition of her coalition with the far-right, Vox. The socialist candidate for the region of Madrid, the former Minister of Industry and Tourism, Reyes Maroto, is not expected to fare well in the upcoming regional elections of Madrid. The city of Barcelona remains the most contested at a municipal level, with the Catalan socialist party, the PSC, holding the lead, followed closely by the conservative candidate of Junts, Xavier Trias. The candidate from the radical pro-independence ERC party comes in third and the united left group of the current Mayor Ada Colau, fourth. This could result in the formation of a new coalition municipal Government between the PSC, ERC and the united left of Ada Colau, although it is unlikely that Colau will be able to revalidate her position as Mayor of the city.
Public Deficit and Public Debt
The European Commission has announced an end to the easing of public deficit and public debt rules as of the 1st of January, 2024, putting an end to the exceptional situation adopted in 2020 in response to the economic fallout from the covid-19 pandemic. Although Member States and the European Commission still need to agree on new fiscal and budgetary rules going forward, the European Commission will demand that Member States, including Spain, draw up plans to bring their public finances in line with public deficit and debt rules of 3% deficit and 60% debt by 2026. This will mean that the new Government formed following the general elections of the 10th of December will be required to implement tough cutbacks on public spending, fiscal credits and Government sponsored loans for the new legislature, as part of its budget proposal for 2024.
The European Commission has also announced that it will re-launch deficit and debt non-compliance procedures as early as the spring of 2024, targeting those countries that have not met the targets. Although these procedures are unlikely to end in sanctions on those non-compliant Member States, they do have an impact on the credit rating of Member States and on their access to EU funds and programmes. Spain’s public deficit is expected to close next year at 4.3%, the highest in the EU and will not reach 3% until the end of 2025. Public debt ratios are expected to remain stable in 2023 and 2024, at 111% of GDP.
According to the national association of tax agents and fiscal responsibility, the AIReF, the central Government will need to implement cut backs totaling 21 billion euros between 2024 and 2028 in order to reach the newly reactivated fiscal rules. Any cutbacks made by the Government will most likely come with further fiscal reforms including the adoption of a new 15% minimum corporate tax, which may be sent to the Parliament before the end of the year. This new corporate tax, which would eliminate many of the tax credits applied by large corporations, if adopted, is expected to replace the extraordinary taxes on financial services and energy utility companies adopted at the end of 2022.
In line with this new corporate tax rate, the Prime Minister has stated that he is studying proposals made by one of Spain’s national unions to create a national observatory on corporate profits, similar in nature to the observatory created in France, which monitors prices and margins in the food retail industry. The observatory, if created, would be responsible for monitoring corporate margins and the data generated would be used to adopt measures to combat inflation and be applicable to social dialogues regarding wage increases and worker benefits.
Energy transition/Renewable energies
The Spanish Government’s plans for more intervention in the energy market, including the replacement of the electricity spot market with regulated auctions and contracts for difference, or CfDs, and the non-inclusion of pink hydrogen as a renewable energy source, have been rejected by the European Commission. The European Commission does support promoting more bilateral contracts between electricity consumers and utility companies, but rejects eliminating the spot market, on the grounds that the spot market is key to sending price indicators to the market and would allow the market to adjust accordingly. The European Commission’s proposal will now go to the Council of Ministers and the European Parliament for adoption. The Spanish Government is expected to continue defending its proposals and reject the central premises of the European Comission’s proposal on the electricity spot market, which has the backing of Germany and several Northern and Eastern European members.
Under pressure from France, Spain has been forced to accept including pink hydrogen, which is generated by nuclear power plants, under EU renewable energy targets, in exchange for access to the EU energy market, in particular Germany, through new hydrogen and gas pipelines linking Portugal and Spain to France. Member States have also agreed to continue including primary woody biomass, as a source of renewable energy, but only under new, tougher sustainability certification schemes. This provisional agreement now needs to be ratified by the European Parliament and the Council of Ministers.
The Government’s parliamentary coalition partners and its junior coalition partner, as well as from environmental groups and regional community groups, are calling on the Government to reintroduce environmental impact assessments on large renewable solar and wind projects. The socialist group has rejected these petitions arguing that the new system is working well and that it continues to protect environmentally sensitive areas.
The approval of several projects, in particular large solar projects in north-eastern Spain and a large offshore windmill project off the coast of Galicia in north-western Spain has spurred public rejection of these projects in these regions and ignited political opposition to them, on the grounds that these projects will have profound environmental impacts and affect the economic livelihood of farmers and fishermen.
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