Spanish Affairs – August 2022

By: Sebastian Mariz, CEO of Influence Spain


With over 300 events planned for the autumn and up to 40 for the Prime Minister himself, the socialist party and the PM want to reconnect with the public, eclipse the leader of the opposition party, and campaign for the regional and municipal elections of May 2023. 

Under the slogan “The Peoples Government”, the campaign includes multiple meetings between the PM and municipal and regional leaders, as well as a large number of other events hosted by regional and municipal leaders, party members and militants. During the events, the PM and the party hope to be able to explain to voters what the coalition government has done for voters to minimize the impact of high inflation, the energy crisis and the economic slowdown.

The campaign also aims to placate any remaining opposition to the PM from within the party, following the disastrous results in the Andalucian regional elections in June, and the party reshuffle imposed by the PM in July. It will also aim to break the downward trend in voter support registered in different polls, and which currently give the opposition, Partido Popular (PP) and its new leader, Nuñez Feijoo, 34% of the votes and a 10% lead over the socialist party.  If elections were held today, the PP would be able to form a government coalition with the far-right Vox party, whereas the PM and his socialist party would be unable to form a similar coalition to then one in power now.

Highly charged legislative agenda for the autumn

The PM’s legislative agenda for this autumn, while not as ambitious as over the spring, is equally as challenging as it includes parliamentary agreement and adoption of several highly charged legislative initiatives, including: 

  • The national budget for 2023;
  • An emergency law on measures to tackle the energy and inflationary crisis; 
  • New taxes on banking and utility profits;
  • A new law on university governance;
  • A new law on measures to reduce food waste;
  • A new law on sustainable mobility; and
  • New rules affecting companies declaring bankruptcy and higher social security contributions for freelance professionals. 

Negotiations with the junior partner, Unidas Podemos, on the draft budget law began at the end of July, and agreement was reached on the highest budget spending ceiling in Spanish democratic history. Real negotiations will start now, in September, however, and will focus on the contents of the budget law and the budget spending lines to be agreed on, after which the draft law will go to the Parliament in October. 

If all goes well, the PM could have a new budget for next year adopted by mid-November. And if he achieves this, he will have revalidated his coalition Government for another year.  If he doesn’t, and his coalition partners make excessive demands during negotiations, the PM will be forced to roll over the 2022 budget, significantly weakening his ability to table new legislative initiatives prior to the regional and municipal elections of May 2023 and the general elections of December 2023.  He is not, however, expected to call early elections if the national budget law is not adopted.

Negotiations with Unidas Podemos, are expected to go smoothly, although the junior partner will likely make demands on more social spending, social welfare programs, and social housing, with adoption of a new national Housing Law and its measures on intervening the rental housing market, as well as demands for a new steep increase in the minimum wage. These demands will be made in exchange for Unidas Podemos support on more military spending, as demanded by NATO and the US. 

Labor market tensions

The labor market and union unrest over loss of worker purchasing power, may strain negotiation between the coalition partners over the new budget and the other legislative initiatives in the pipeline.  For her side, the Minister of Employment and leader of the newly created ‘Sumar’ political party, the Minister’s personal alternative to Unidas Podemos, has publicly supported labor unions who are threatening to organize nationwide protests and strikes if the employers confederation refuses to agree to generalized salary hikes and the Government fails to raise the minimum wage from €7.82/hour to €8.77/hour. 

The PM announced an agreement on a wage freeze early in the year, and will be hard pressed to adopt a new generalized salary hike and a new hike in the minimum wage, which would put further inflationary pressures on the economy and reduce profit margins for companies. It would also make it harder for companies to pay back the over 140 billion euros in Government sponsored loans granted during the pandemic, and face the higher interest rates and energy costs expected this autumn.   So far, banks have not seen a significant increase in loan delinquency rates, but have registered a 26.2% hike in requests for refinancing of loans, over the third semester of the year.

The combination of a wage hike and loan maturities, coupled with higher interest rates and higher energy costs, could lead to a perfect storm and massive worker layoffs, while fueling financial speculation against Spanish national debt, and further damage voter support for the PM and his socialist party.  The Bank of Spain issued an alert at the beginning of August, on the impact the energy crisis, high inflation and higher interest rates is having on internal consumption and household savings, both of which have been steadily and consistently falling since March.

Stronger ties with Germany

On the international front, the PM is prioritizing his relations with the German Government and in particular its Chancellor, Olaf Scholz, so as to leverage German support for Spain’s interventionist measures on the gas market, in order to gain broader support for adoption of similar interventionist measures Europe-wide.  Spanish intervention artificially set gas prices for gas used to generate electricity sold on the electricity spot market.  

Scholz has also backed Spain’s calls for the EU to speed up financing and approval of the gas interconnection between Spain and France, as a powerful alternative to Russian gas flowing to Germany from the East.   With Germany openly supporting the Spanish proposal, it will be increasingly hard for France to block progress on this interconnection and to protect its monopoly on nuclear power in Europe. 

An alternative to the interconnection with France, would be to connect Spain to Italy. This option also has German support, as well as Italian, but would be more expensive and would pump less gas to Germany.


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