By: Sebastian Mariz, CEO of Influence Spain
Following a tumultuous start to the summer, with inflation remaining high and climbing, a heat wave which has led to over 200,000 hectares of burned land and the worst forest fires in over a century; as well as clashes within the European Union over how to tackle the energy crisis, Pedro Sánchez will officially initiate his summer retreat on the 3rd of August, following the last Council of Ministers of the summer, which will be held on the 2nd of August. A skeleton staff will be in place as of the 23rd of August when the Council of Ministers will meet again, and the PM implements his Government’s autumn agenda. An agenda centered largely on three priorities: recovering voter support, tackling record high inflation rates and a weak economy, and ensuring political stability until the general elections of December 2023.
Recovering voter support
For the first time in over four years, the conservative party of Alberto Nuñez Feijóo has overtaken the socialist party in voter support according to the poll carried out by the State run sociological institute, the CIS, on the 19th of July. If elections were held today, the PP would win 30.1% of the votes and the socialist party 28.2%, followed by Unidas Podemos with 13.4% and Vox with 12%.
These poll results reflect the impact on voter support from the outcome of the Andalucian elections and the appointment of Feijoó as new conservative party leader, but also reflect voter discontent over the Government’s handling of the economic crisis and high inflation rates, indifference over the policy measures announced during the State of the Nation debate held in Parliament on the 12th of July, and the limited impact of the NATO summit held in Madrid. It also reflects waning support for the far-right Vox party and the stabilization of the Unidas Podemos voting base, with the launch of the new communist brand, Suma.
No significant changes are registered amongst the splintering of smaller nationalist parties who have supported Pedro Sánchez to date, with the Basque Nationalist Party, the PNV, the radical Catalan ERC party and the conservative Catalan JxCat party, all registering similar percentages as obtained in the December 2019 elections. If elections were held in September, Pedro Sánchez would be able to form a very weak minority coalition Government with the same coalition partners. The once strong, centrist liberal party, Ciudadanos, would not obtain enough votes for representation in the Parliament and would become a relic of the past.
In order to overturn this situation, recover voter support and more importantly avoid a disaster in the municipal and regional elections of May 2023, Pedro Sánchez is betting all of his odds on shifting policy even further to the left and providing worried and economically strained voters with more social welfare support, an increasingly progressive agenda and more market intervention. Taking the opposition by surprise, the PM fully aligned his policy line with that of of his coalition partners and mustered sufficient parliamentary support for the adoption of parliamentary resolutions calling on the Government to adopt temporary new taxes on banking profits and windfall profits in the electricity sector, so as to finance an extension of the 20 cent tax credit on petrol prices until the end of the year, free public train services for intra-city transport, and pay an extra €100 euros to university students who have won a scholarship and who come from more vulnerable, lower income households.
Other measures, already on the agenda prior to the debate, and which were also adopted by a majority of MPs, include adoption of new measures to modernize and strengthen Spanish industry, new sustainable mobility rules and €200 million euros to speed up the installation of solar panels on public buildings.
Continued parliamentary support from his coalition partners has not come, however, for free. Unidas Podemos continues to publicly criticize the PM for agreeing to increasing public spending on acquiring weapons for the Spanish army and has conditioned its support for the 2023 national budget on adopting an even more progressive agenda for the last year of the legislature. These measures include extending the petrol subsidy for another year, extending paid maternity leave to 6 months, raising public spending and criminalizing those companies which transfer the costs of the new banking and energy taxes to the final consumer. In order to show the PM that these demands are real, Podemos, along with the other coalition partners have rejected three key pieces of legislation, forcing the PM to further negotiate their contents in a third reading in Parliament. These three pieces of legislation include the Law on sexual rights, the Science Law and the new Bankruptcies Law.
Tackling high inflation
Inflation continues to rise and hit a new record in June at 10.2% according to the data published by the national statistics institute, the INE, on the 12th of July. This data shows that inflation has not spread to other economic areas, other than energy and has led to rapidly rising prices in the food and housing sectors as well. Energy continues to register the highest increases at 40.7%, followed by housing at 19%, food at 12.9% and hotels and restaurants at 7.2%.
In response, and as indicated earlier, the PM has announced the adoption of new social measures and taxes on the banking and energy sector to pay for them, publicly stating that his Government will not allow business to take advantage of this high inflationary period to earn profit at the cost of the general public. He also announced that measures may need to be taken in the autumn or winter to reduce energy consumption in the event that the war in the Ukraine results in energy shortages in the rest of Europe. He warned, however, that any such measures will need to be taken in agreement with the rest of Europe and in such a way so as to minimize the impact on the living standards and life style of Spaniards.
The Energy Minister, Theresa Ribera has been highly critical of the European Union’s response to the energy crisis. In joint statements with the Portuguese Government, she indicated that Spain and Portugal have done their homework and are well prepared for any energy crisis originating from Russia and have the gas reserves necessary not to have to introduce gas cuts or the 15% reduction in consumption suggested by Europe. As such, she agreed to a 7% cut in the European Energy Council of the 27th of July.
Both the Spanish and Portuguese governments are taking advantage of the current situation, and are calling on the European Commission and their European partners to speed up gas interconnections with the rest of Europe. Ribera continues to insist, however, that these connections must be hydrogen friendly and that gas should not be considered a sustainable transition energy source as adopted by the European Commission and the European Parliament in the new EU taxonomy rules. She has been highly critical of this decision, and has announced that Spain will not apply these new rules when publicly financing green projects.
Despite the high inflation levels, the Government remains confident that the economy will continue to grow above the EU average, at 4.3% for this year and 2.7% for 2023, 8 percentage points lower than estimated in the previous projections. It also expects employment to continue to grow by 3.7%, exceed the current 20.4 million affiliated workers and for unemployment to drop to 12.8% by next year. Internal demand is expected to continue but will continue to contribute 3.7% to GDP growth, which coupled with the positive growth from foreign demand, largely in the form of growth in the tourism market, will mean Spain continues to register economic growth above that of its European neighbors.
Having reached agreement with his junior coalition partner on a record high public spending cap of nearly 198 billion euros, the PM has laid the foundations for the successful negotiation of a new budget for 2023 and the last one under the current Government. The new budget, which will be sent to Parliament in October, will be the final litmus test on the political stability to be expected in the final year of this legislature, and for all intends and purposes will be the election the coalition election campaign programme for the general elections at the end of 2023 and for the regional and municipal elections of May 2023.
In order to reinforce his negotiating capacity during the budget negotiations starting in October, and ending in December, Sanchez has made deep changes within both his political party and the socialist parliamentary group. The new number two in the party is now the Fiscal Affairs Minister, María Jesús Montero, the party spokeswoman, Pilar Alegría and the parliamentary spokesman, Patxi López. These changes reflect the PM’s desire to give parliamentary negotiations and the party itself a fresh start and fresh new image starting in September, replacing those party and group representatives who have borne the brunt of difficult negotiations over the past two years.