Spain after the elections

Although the political and business elites of Spain seem unaware of the fact, it appears that the European Monetary Union has destroyed yet another country’s political system. The elections in Spain last Sunday have yielded unclear results and much confusion domestically and abroad. The German cabinet is so perplexed that their spokesperson has declared that they do not know whom to congratulate for the electoral results. Shocked and confused, the Spanish establishment are still trying to digest the unsavory menu served by last Sunday’s elections. Only one thing is clear: it will not be easy to form a government in Spain. This is the first time that Spanish citizens went to bed after a general election not knowing who their next president of the government was going to be.

The following table shows the results in votes and seats. As expected, the two new upstart parties, Ciudadanos and Podemos made it into the Cortes with a large harvest of new deputies. Neither had representation in the Cortes until now. Remember that the latter did not even exist a year ago so their feat is the more astonishing.

Table 1. Electoral results and seats in the two houses of the Cortes by political party.

Pollsters faced an unprecedented challenge trying to forecast the outcome of the elections. It was clear that these new parties were going to collect a significant number of votes but there was no precedent on how to predict the electoral results, especially because there were many citizens who were undecided on the eve of the elections. Nevertheless, polls in the last week before the election were not too far off. Their biggest mistake was their estimate for Ciudadanos. Two weeks ago, some opinion polls were projecting that they could come in second ahead of the Socialist. However, they gained only 40 seats with 3.5 million votes, not a minor feat. Many cynically wondered if the pollsters had confounded their wishes with reality.

The conservative party, PP, came in first with 28% of the vote, as predicted, but it was a Pyrrhic victory: they have lost more than 3.6 million votes after amassing an unprecedented level of support in the previous elections of 2011.  The electoral system, where a small number of deputies represents many underpopulated provinces, gives the party coming in first a premium. Thanks to the distortions in the system, the PP got a portion of the seats in the lower House larger than its share of the vote as well as control over the Senate. Nonetheless, many of the PP’s former supporters did not buy the narrative of the economic recovery and corruption scandals angered many center right voters who turned to Ciudadanos instead. We ask ourselves if Mariano Rajoy has any remorse regarding their lack of empathy toward the victims of the economic crisis and the austerity policies or their tepid response to the constant flow of corruption scandals affecting his party.

In the left, the Socialdemocrats of PSOE obtained their worst result in their history since the return of democracy. However, given that opinion polls were predicting an even more catastrophic outcome for them, the party bosses were actually relieved and their leader, Pedro Sánchez, did not have to resign on the same night of the elections. They managed to retain some of their historic strongholds in Andalusia and Extremadura but they have become irrelevant in major regions such as Madrid, Catalonia and the Basque Country.

One wonders if the Socialist leadership is not embarrassed to see their party hemorrhage  5.5 million votes in less than 11 years. One further wonders if they are asking themselves the right questions about what they have done wrong. Sadly, for them, the initial response of president Zapatero to the Global Financial Crisis, a major stimulus package, was the correct one. In fact, the economy had started to recover in 2010. However, Zapatero’s quick submission to the austerity policies imposed by the Merkel-Trichet-Sarkozy hydra destroyed his party’s credibility. They now only retain the loyalty of aged working class voters. They have paid dearly for their Europeanism. Audaces fortuna iuvat; if they had shown some muscle before the demands of the European institutions in 2011 they might have retained the loyalty of the voters who have now abandoned them. For a party that wants to win elections in the leftist electorate being seen as a supporter of austerity is suicide; everybody knows that austerity leads to regressive distributions of income and wealth.

Looking at their faces when party leaders were making their statements on the night of the elections it was clear that only Pablo Iglesias, the leader of the Podemites, was satisfied. With 69 seats, they are now only 340,000 votes shy of displacing PSOE as the main party in the left. It was a bit odd that Pablo Iglesias drew several red lines as a condition for agreeing to a coalition with the Socialists. These include a change in the electoral system to make it more proportional, a referendum for the self-determination of Catalonia and shielding several social rights —such as the right to a home and public healthcare in the Constitution—. One would have expected that they would have put the emphasis on jobs and getting people out of poverty. The condition of a referendum in Catalonia is likely the price paid to include the supporters of the mayor of Barcelona in Pablo Iglesias’ coalition. The outcome of Podemos was spectacular in Catalonia where they came in first, displacing pro-independence parties who together got less than 35% of the vote in that region. Many citizens of that region want a referendum but not necessarily independence so, perhaps, other parties would be wise to consider this solution to the Catalan independence soap opera. Podemos also came in first in the Basque Country and Navarra, again displacing nationalist and regionalist parties who have dominated politics in those regions for decades; this is one of the most unexpected and interesting outcomes of these elections.

If Podemos had formed a coalition with Alberto Garzón’s Unidad Popular platform, led by Izquierda Unida (IU), they would have had gained an additional 14 seats, enough to form a left-wing coalition a la Portuguesa with PSOE. However, they ran separately and the electoral system has pummeled IU: only two seats despite receiving more than 900,000 votes. Many now blame Garzón and Iglesias for letting their egos get in the way of a radical anti-austerity coalition.

We now have the most fragmented Parliament in Spain’s history and this complicates the formation of a stable government beyond belief. An opinion article in El País read, “Welcome to Italy… but without Italians to manage it”. The Congreso de los Diputados or Lower House has 350 members. A candidate to form a government needs to win at least 176 thereof in a first vote or more ayes than nays in a second pass. It is hard to see which leader has the capacity to muster a stable coalition with the required level of support. The following table shows how many seats each potential coalition would total.

Figure 1. Potential parliamentary majorities.

Clearly, Mariano Rajoy cannot form a center-right coalition with the sole support of Ciudadanos as it would fall short of the required parliamentary majority. A center-right coalition with the multitude of conservative nationalist and regionalist parties is unlikely since the PP has few friends amongst those who want to “break the unity of Spain”. A left-wing block is not easy to form either. Podemos, after all, is integrated by local coalitions in some regions, so they need to convince too many parties with conflicting agendas. Some “barons” in the PSOE have warned that they will not support a coalition with the “radicals” of Podemos who want to question the sovereignty of Spain in Catalonia. In any event, this left block would still fall short of the 176 votes needed. A rainbow coalition of left wing, regionalist and nationalist parties would also be challenging to manage. It is hard to see those who want independence of Catalonia in a coalition with the Socialist party.

Will we see a German style “Gross Koalition” of PP, Ciudadanos and PSOE? This would probably be the preferred choice of the European Commission, Mario Draghi, Angela Merkel and many in the Spanish establishment. However, it would be suicide for the Socialist: in two years’ time, Podemos would be the new Syriza and PSOE would follow the path of the now practically defunct PASOK. Pedro Sánchez has already declared that he will not support a cabinet led by Mariano Rajoy. Another scenario is that the PSOE allows the PP to govern, conditioned to a constitutional reform. The new magna chart would have to be endorsed in a referendum followed by dissolution of the Cortes and new general elections; probably in less than two years. Many, especially in the left, want constitutional reform to address the Catalan issue and shield some social rights in a nation traumatized by the dire consequences of austerity. The problem is building a consensus in the now fractious Cortes on what that new text should look like. In any event, with its control of the Senate, the PP can turn down any amendment to the constitution that is not to its liking.

The King has two months to propose a candidate who can secure a mandate. If no candidate earns the confidence of the Parliament, the monarch will have to call elections again. Spain has entered into unchartered territory since there is little experience with coalition governments that are more common north of the Pyrenees. The only thing clear is that the new government will have very little legitimacy to do anything meaningful, let alone Brussels style structural reform.

We hope that Brussels, Frankfurt and Berlin have picked up the message that their austerity, internal devaluation and structural reform recipe has failed to deliver and is self-defeating. The policies sponsored by the European leaders and dutifully applied by the two-party system led to appalling unemployment —the rate reached 27%; more than 50% in the youth— eviction of hundreds of thousands from their homes and sunk 30% of the population under the poverty line. The parties who applied them are now at risk of disappearing from the political scene to be replaced by upstarts. It is unlikely that a new government will now have the stomach to force down more “bitter pills” down the throats of their citizens. Spaniards want growth and jobs, not reforms without results.

Stability has vanished from the Spanish political system. In return, however, political life may become more democratic, interesting and transparent. We might also witness the formation of a Southern front within the EU.

Not Dancing Tango any Longer: The end of the Two-party System in Spain

Un análisis de la situación política pedido por los compañeros de Rete MMT. En inglés.

It would be fair to say that Spain had one of the most stable political systems in Western Europe. For 40 years, since the approval of the Constitution of 1978, two political parties have alternated in power, the Social Democrats of the PSOE (Partido Socialista Obrero Español or Spanish Socialist Workers Party), the oldest political organization in the country founded in 1879, and the conservative PP (Partido Popular or People’s Party). The electoral system, technically proportional, but strongly biased toward the formation of majorities thanks to the numerous electoral districts with small populations, each sending a small number of deputies to the Parliament, secured a sequence of absolute majorities in the Cortes. The tradition of two-party politics goes back to the “Restauracion” period of 1871-1927 until it broke down with the collapse of that regime and the instauration of the Second Republic. Then a plethora of political parties appeared and complicated the formation of stable governments. The trauma of the Civil War and the long dictatorship that followed helps explain both the electoral system’s bias towards the formation of large majorities and the conservatism of the electorate. The warp in this framework were the sundry, and mostly center-right, nationalist and regionalist parties, especially those of Catalonia and the Basque Country. The Communist Party, never a major force before the Civil War, but which distinguished itself in the fight against Fascism, saw disappointing results in the first democratic elections and languished until it coalesced with other splinter parties to form Izquierda Unida (IU), a protest party for disappointed or disgruntled socialist voters or diehard communists.

The peak of “bipartidismo” was 2008. The two big parties gained 92% of all the seats in the Lower House of the Cortes. The Eurocrisis is about to blow this system away. Our system is now in disarray and is entering unchartered territory, probably forever.

The problem with two-party systems is that it generates very contentious politics with little space left for middle ground positions and a poor level of nuanced debate and analysis. The privately owned media have played the sectarian game with little regard for objective reporting and the public media worked for the party in power. Bipartidismo, has created conditions for impunity in party linked corruption, especially through combined control of the judiciary and the complicit silence of the media, especially when cases affected their championed party. Most of the corruption cases were linked to the financing of the costly party organizations and electoral campaigns. The real estate boom, that ignited when Spain joined the Euro, provided ample fodder for the numerous influence peddling and embezzlement cases. Spanish and Northern Europe banks funded the construction companies who, in turn, had to convince the regional authorities, those who held the key to urban zoning, that this or that lot deserved to be built up, frequently with total disregard to any environmental concerns or public service provisioning. Both PSOE and PP have been involved in notorious cases although the conservative party seems to have acted a lot more shamelessly.

When the country joined the Eurozone, cash flowed into Spain like never before. Ordinary people got easy access to credit financing spent in durable goods, houses and expensive German cars. An influx of immigrant labor came in to fill in the demand for construction workers until the foreign population reached 12% of the total. For a decade, to use the phrase coined by former President Aznar, “España iba bien” (“Spain is doing well”). However, a huge pile of debt, that would hatch into a balance sheet recession, was inflating the bubble.

When Spain committed to it, nobody questioned the European Monetary Union with the exception of former IU leader Julio Anguita -but his was considered an extravagant position even by members of his own party. The European project was unanimously seen as the opportunity to integrate the country in European affairs from which we had been disconnected for too long. Spanish Euroenthusiasm verged on the naïve and the zeal of the new convert. No referendum leading to European integration was lost, unlike France. In fact, only one, to approve the aborted European Constitution, was ever held to interrogate the electorate on European matters.

The economic crisis that originated in 2008 and the suden interruption of the credit flows from German banks to the Spanish private sector put an abrupt end to the real estate boom. With the exception of the last remaining and aged Keynesian economists that saw it coming, few had warned of the impending crisis that would follow the collapse of credit. The consequences have been dire. Unemployment has seen records of 27% and youth unemployment has hovered around 50% for eight yeas now. The immigration phenomenon has been replaced by the emigration of the most talented part of the young population. The looming demographic crisis has seen deaths surpass births for the first time this year.

The initial response of the Zapatero government was an expansionist fiscal policy that took the Government deficit to 9% of GDP in 2010. Had the plan been allowed to continue it would have probably worked. However, the austerian reaction, plotted by Merkel, Sarkoy, Barroso and Trichet to save German and French banks in 2010, nipped the recovery in the bud. Trichet’s blackmail letter forced Zapatero to change the course to “expansionist austerity and internal devaluation”.

Figure 1. Evolution of Spanish GDP. Source: INE

The elections of 2008 were the swan song of “bipartidismo”. In 2011, irritated voters abandoned the PSOE who returned the worst result in their recent history. The recession propelled the inane and unimaginative Rajoy to the Government with an unprecedented level of support.  

But Rajoy was a champion of austerity. The austerity recipes led to an even deeper employment crisis and Rajoy’s popularity plummeted. The attempt to privatize parts of the excellent public healthcare system in Madrid, the suppression of the Christmas pay of public workers in 2012 and the steep hikes in tax rates alienated many of the PP's traditional middle class supporters. The change in course to fiscal expansion on the back of Draghi’s plan to save the Euro was probably too little, too late although some optimism has now returned.

Then a deluge of PP corruption scandals made it to the headlines. The omertà broke open probably because the money to keep people quiet was not flowing. Moreover, judges were irritated to see their pay checks reduced. New on-line papers and television channels divulged the corruption scandals affecting PP and PSOE. We saw major party officials parading through the court houses and in and out of jail.

The demise of the Spanish middle class, whose expectations had been thwarted by the crisis and the growing irritation with the PP opened a window of opportunity to new political parties. Many voters were not going back to the PSOE, who was discredited by its handling of the crisis. That Podemos is a middle class party is evident: support for them is higher amongst high income people with university degrees. Ciudadanos is also a middle class party but more "respectable" and conservative.

The shock to the political system came in the European elections of 2014. A whole host of new parties ran for the first time, but the surprise was the sudden breakthrough of PODEMOS (We Can), a party of professors from the School of Political Sciences who had acted as advisors to IU and leftist governments in Latin America and had participated in the “Indignados” movement of 2011. Their young pony-tailed leader, Pablo Iglesias, had acquired some prominence by participating in TV political debates. They had also created and online channel, La Tuerka TV, (possibly with funds provided by the government of Venezuela). Podemos used a new radical language denouncing the “caste” —the political and business elites— and calling for a repeal of the debt, even suggesting leaving the euro if need be. Pablo Iglesias spoke of the “Fatherland” giving it a progressive meaning in a nation where patriotism equates to being a rightwinger. Podemos managed to return 5 seats in the European Parliament and came in third place in Madrid. Interestingly, although many of their leaders came from the anticapitalist and communist youth, they  claimed that they could not be classified as right or left; they were trying to attract disgruntled PP voters. However, that ambiguous positioning in the right-left spectrum would prove unstable.

An older protagonist is the Catalan Ciutadans (Ciudadanos in Spanish), originally, and for years, a local party founded as a reaction to the Catalan nationalist policies imposing the vernacular language on all children at school attracting those dissatisfied with the ambiguous position of the local branch of the Socialists on this issue, most of whose voters are immigrants from other regions and not native Catalans. When Podemos started to surge in opinion polls, with its radical anti-austerity discourse, it became evident to the establishment that this was a serious threat. In mid-2015, Podemos was coming in third place in opinion polls and collecting a share of 25% of the estimated vote. El País and El Mundo, the main Madrid journals began a campaign to discredit them, revealing their connections to Venezuela. However, this was not enough. It was clear that the large corporations needed a new center right party, with a more modern image and untarnished by corruption scandals.  Podemos derided the attractive leader of Ciudadanos, Albert Rivera, as the white brand of the PP. However, in the municipal and regional elections, Ciudadanos came in third, disappointing, but the center right could now bet on a new horse. In those elections, Podemos decided not to run under its own brand and participated in local coalitions that managed to place their candidates as mayors of Madrid and Barcelona.

In Catalonia, dissatisfaction with the economic situation, years of nationalist agitation about regional funding and the clumsy management of the new Statute, partially declared unconstitutional by the Constitutional Court, combined to spawn an unprecedented rise in pro-independence sentiment. In Barcelona, it was easy to blame Madrid for the austerity policies. The corruption scandals that tarnished the leadership of the nationalist conservative party, Convergència I Unió (CiU), is probably behind the headlong radicalization of this previously compromising organization’s leadership: in independence, they have found a way out of their judicial and penal future.

Artur Mas, president of Catalonia, decided to call a plebiscitary regional election two months ago joining forces with the center left Esquerra Republicana de Catalunya in a coalition named “Junts pel Sí” (Together for Yes). The goal was to get a majority for independence. They fell shy of 48%, insufficient to press ahead with independence. However, the two moral winners were Ciutadans, who came in second, and the radical pro-independence libertarians, CUP, who gained enough seats to set the rules in the independentist camp -a bitter pill for the remains of Mr. Mas's conservative party after moderate regionalists dropped out of the drive for secession. To date, Junts pel Sí and CUP have not been able to agree on the formation of a new government. However, the Catalan elections revealed Ciudadanos as a true contender whereas Podemos did not obtain a good result. Ciudadanos has now dislodged a centrist anti-corruption party, UPyD, from the race.

The decline in the vote of Podemos proved the effectiveness of the campaign against them.  In addition, Podemos appears to have moderated its discourse in an effort to dispute voters from PSOE. This moderation might have diminished the appeal of the new party amongst more radical voters while they have lost the center right voters that they attracted in the first hours; the latter are now comfortable with Ciudadanos. Nonetheless, they seem to be regaining ground thanks to their media-savy leadership and a good performance in TV debates, possibly at the cost of the PSOE.

Rajoy has celled general elections for December 20. The result has never been more uncertain. The opinion polls draw a scenario in which three parties have almost equal shares and Podemos has been regaining ground in the past two weeks. Any outcome is now possible.

Figure 2. Evolution of vote estimates per party. Source: El Diario.

Ciudadanos is running with a neoliberal program designed by the economist Luis Garicano. Star proposals include a tax credit for low incomes, a single type of work contract, structural reforms, simplification of the tax systems and active employment policies; in few words the classic supply side economics  recipe that any European Commission would endores. Esteban Cruz and myself conducted detailed analysis of their economic program in Spanish printed in InfoLibre. Podemos is proposing a social democratic program that includes a basic income, a reversal of labor reforms introduced by the PP, promotion of clean energy,  redistributive tax reforms, increasing the minimum wage and introducing a system of Social Security payments that is proportional to income of self-employed workers. A key proposal is an audit of public debt. Both new parties share proposals to give Spanish democracy more transparence to fight corruption. Podemos is especially keen in blocking the "revolving doors", a metaphor used to describe the habit of former ministers and presidents joining boards of large corporations after leaving power, a practice which they denounce as influence peddling.

Izquierda Unida’s candidate, Alberto Garzón, is a friend of Modern Money Theory. They are the only ones to propose a job guarantee program but they are unlikely to get meaningful parliamentary representation. Garzón tried to form a coalition with Pablo Iglesias. It appears that old-timers within IU managed to unravel the “Confluencia” of the left but Podemos, IU and sundry left parties have formed coalitions in Catalonia, Galicia and Valencia. The anti-austerity field is being hotly contested by IU and Podemos.

PSOE, with its young new leader, Pedro Sánchez, has presented a "pragmatic" economic program with a partial repeal of the labor law reforms introduced by Rajoy, an emphasis on gender equality and a more gradual reduction of the fiscal deficit. Ciudadanos, Podemos and PSOE probably share a greater commitment to increase investment in R&D, something that PP has certainly neglected. But PSOE has a major credibility issue due to its association with the first stage of "belt-tightening" with the turn to austerity imposed by the EU institutions in 2010.

PP reversed its headlong course towards the austerity cliff in 2013, probably too late to win the elections with an absolute majority but enough to recover some voters and take first place. They will try to convince voters that it was the “bitter pill”, administered in the first half of their mandate, which has now restored growth and jobs creation in Spain.

Whoever wins will need to form a coalition to govern Spain in 2016. The catch is that they have no experience in this. What is clear is that the old parties have a generational problem: their voter base is increasingly aged. Younger voters are more likely to vote for the new parties. Will this lead to a new form of "bipartidismo" as senior citizens begin to pass away?

Figure 3. Vote estimate by age group.