Spain Report Mario Kölling, Ignacio Molina, César Colino (Coordinator) Sustainable Governance Indicators 2020 © vege - stock.adobe.com Sustainable Governance SGI Indicators SGI 2020 | 2 Spain Report Executive Summary The social and economic crisis (2008 – 2013), which included several corruption scandals, eroded public trust in Spain’s political system. This has had a remarkable impact on the party system since 2015. In addition to the two traditional forces, the conservative Popular Party (PP) and the Socialist Party (PSOE), the left-wing Podemos, the liberal Ciudadanos and the far-right party Vox have emerged, and are now crucial for the formation of majorities in the parliament. Since a grand coalition between the two traditional parties is still unlikely, the new parties are key potential partners in coalition or (possibly via confidence and supply agreements) for minority governments. A wider choice of political alternatives may represent a positive development, but it has come at the cost of reformist momentum and government stability. After the no-confidence vote against Prime Minister Mariano Rajoy in May 2018, the Socialist government – drawing on the support of less than 25% of deputies –conveyed a picture of political change, but lacked the authority to implement deep policy changes. Nevertheless, the PSOE minority government announced ambitious policy reforms and focused on symbolic measures aimed at appealing to progressive voters. However, in February 2019, Spain’s parliament failed to approve the annual budget for 2019, underlining the instability of the PSOE government. As a result, Prime Minister Sánchez decided to call for early elections on 28 April 2019. PSOE’s victory in the elections, with 29% of the vote, seemed to be a sign of democratic resilience. However, by September 2019, no minority or coalition government had been formed and new elections were called for November 2019. The November 2019 elections will be the fourth parliamentary elections in four years. The political debate during the period under review was also dominated by the Catalan crisis. Prime Minister Sánchez tried to find political alternatives to manage the conflict respecting the Catalan statute and the constitution. However, opposition from independence parties to the 2019 budget law and the trial of the secessionist leaders increased tensions. After the four-month trial of 12 independence leaders following the events in September and October 2017, which triggered Spain’s worst political crisis since it returned to democracy, the unanimous verdict of the seven judges was announced on 14 October 2019. Nine of the 12 accused received prison sentences for the crimes of sedition, with four of the nine also found guilty of misuse of public funds. SGI 2020 | 3 Spain Report Their sentences ranged from nine to 13 years. The remaining three accused were found guilty of disobedience and were fined. Although the ruling reflects a strict application of criminal legislation in a rule of law, and the trial met all the requirements of due process, transparency and separation of powers, the Catalan president, Quim Torra, urged an amnesty for those convicted and called for disobedience. After the verdict was made public, protesters gathered at Barcelona-El Prat Airport following instructions by various pro- independence associations, causing the cancelation of 108 flights. Over the following days, police and protesters clashed in Barcelona torching cars and setting up barricades. Pro-independence supporters also held a peaceful protest in Barcelona. Though tens of thousands of people marched in Barcelona in October to demonstrate against the Catalan separatist movement. In contrast to this turbulent political panorama, economic growth remained solid though the growth rate decelerated in 2019. Nevertheless, the European Commission decreased its 2019 GDP growth forecast for Spain from 2.6% to 1.9% in November 2019. Growth rates are expected to slow further in 2020 to 1.5%, which is worrisome given the size of the country’s public debt burden. Other economic indicators show that competitiveness gains have continued to support exports. However, the contribution of net exports to growth is declining and recovery has also been driven by domestic demand. Moreover, average incomes remain lower than before the crisis and bank lending remains limited. Unemployment rates are still high, at 14.2% of the labor force at the time of writing. The future of pensions was another important issue on the political agenda during 2019. The effects of the crisis and increasing life expectancies have reopened the debate on the future of the social security system. Spain’s social security fund has shrunk from €67 billion at its peak in 2011 to just €1.5 billion in autumn 2019. Although the PSOE government announced a reform of the pension system, no progress could be achieved. The European Commission requires action in this field to address the adequacy of future retirees’ incomes, the length and completeness of their working careers in a context of high rates of unemployment and part-time employment, and widespread use of temporary contracts. Due to the political deadlock, no tax reforms could be approved and Spain continues to collect less in taxes relative to wealth than most other European countries, making ambitious education, welfare and environmental policies difficult. SGI 2020 | 4 Spain Report Key Challenges After having implemented structural reforms during the past five years, and having achieved a path of solid economic growth, the Spanish government indicated that it wanted to make its voice heard at the EU level. Here, it was taking advantage of the pro-European stance of Spanish public opinion, along with the leadership gap left by Brexit, and the euroskeptic governments in Italy and Poland. Prime Minister Sánchez participated proactively in the migration debate and supported French President Macron’s plan to strengthen the euro zone. Although the new socialist government seems to have very limited maneuvering room for policy reforms due to its parliamentary weakness, its initial measures and declared priorities all highlighted the main challenges at the domestic level. On the fiscal front, the gap between new policy measures and tax receipts will oblige Spain to collect more revenues. The new government confirmed that it would increase annual tax collections from 38% to 42% of GDP; however, the tax system also needs to increase its efficiency and reduce the incidence of tax evasion. In order to improve the economy’s competitiveness, the government must place greater emphasis on innovation and education. Although the unemployment and youth-unemployment rates have declined somewhat, the government must develop and implement job-creation policies. Maintaining social cohesion has itself become a critical challenge. There is a near-term risk that spending cuts in education, inclusion and family policies may increase social tensions. The government has recognized the need to act in the social field, but budgetary constraints limit the scope afforded to active policymaking. The most visible challenge to the welfare system is the aging of the population, along with the pressure this is already exerting on the sustainability of the healthcare system and the viability of the pension system. Most social policies fall under the responsibilities of the autonomous regions. In this sense, the funding system for regional competences needs to be reformed so that the subnational governments have sufficient resources to address their responsibilities. SGI 2020 | 5 Spain Report Spain’s geographical location strongly exposes it to global environmental challenges such as desertification and climate change. The recently created Ministry for the Ecological Transition aims to lead an energy transition toward more ecologically sound means of production. Regarding political stability, the single-party minority government will require allies for most legislative initiatives. This means the PSOE must strike compromises with other parties in the parliament on most issues. In today’s polarized political climate, this will be a significant challenge. Moreover, the situation in Catalonia endangers political stability. Although there have been signs of a better understanding, political positions remain very distant. Party Polarization From the mid-1980s to the mid-2010s, Spain’s national party system was dominated by a simple competition between the social-democratic Spanish Socialist Workers Party (PSOE) and the conservative People’s Party (PP). The bipolar left-right competition led to a majoritarian and confrontational style of democracy, but as major parties tended to win an absolute parliamentary majority, polarization was no more than a minor obstacle with regard to policymaking. However, a number of factors (including economic crisis, corruption scandals, lack of popular trust in the two mainstream traditional parties and the secessionist conflict in Catalonia) have produced a newly fragmented and more polarized party system. Since 2014, the leftist anti-establishment Podemos party and the center-right Ciudadanos have entered the national arena, the moderate nationalist Catalan forces have collapsed, and an emergent right-wing populist party, Vox, has emerged with strength. Thus, the April/May 2019 elections resulted in a further fracturing of the political landscape. While the wider choice of political alternatives for voters may be healthy, it has come at the cost of reformist