Spanish voters will head back to the polls in late June to try to break the political deadlock impeding the formation of a new government. Despite King Felipe VI's last-ditch effort on April 25-26 to mediate the disputes among the country's main political parties, they remain as divided as ever. And though the Spanish economy has finally started to grow again after years of recession, political uncertainty will no doubt take its toll as fragmentation produces more fragile governments in the years to come.
Spain's last round of general elections, held in December 2015, resulted in a hung parliament that left Prime Minister Mariano Rajoy's center-right Popular Party with the most votes, but not enough to control parliament alone. The country's biggest opposition parties — the center-left Socialist Party, left-wing Podemos and centrist Ciudadanos — refused to align with either Rajoy or one another. Since four months of party negotiations and three rounds of consultations with the king have yielded little progress, the Spanish electorate will be forced to vote again.
But according to the latest opinion polls, it is unlikely that new elections will produce radically different results. Coalitions will still be needed to form the next government. Though mounting pressure for a political settlement will make a coalition more likely to emerge after the June elections than the previous round, Spain's experience with coalition governments is minimal, and the next administration — no matter who leads it — could be short-lived.
So far, the country's political impasse has not had much impact on its incipient economic recovery. On April 29, Spain's Naitional Statistics Institute announced that the Spanish economy grew by 0.8 percent in the first quarter of 2016. However, the Bank of Spain recently warned that political uncertainty could harm the Spanish economy as companies and households delay investment or consumption until the situation becomes more stable. If the bank's prediction comes to pass, it would come on the heels of a global economic slowdown and the stabilization of oil prices, which could also mitigate Spanish growth. According to the bank, the Spanish economy will slowdown in the coming months. In addition, the institution warned that political fragility would make it difficult for any government in Madrid to reduce the Spanish deficit and implement structural reforms.
Difficult Problems Await the Next Government
The next government can ill afford to be ineffectual, considering the substantial challenges that lie ahead. Chief among them is slowing economic growth. After a lengthy recession, Spain's economy began to expand in 2014 as its gross domestic product rose by 1.4 percent. The following year, the Spanish economy made one of the strongest showings in the eurozone with GDP growth of 3.2 percent — the best performance the country had seen in nearly a decade. But all good things must come to an end, and Madrid recently admitted that it expects the Spanish economy to lose momentum in 2016 and 2017, growing by 2.7 percent and 2.4 percent respectively, as domestic uncertainty rises and growth falters in emerging markets and throughout the eurozone.
Spanish unemployment levels will follow a similar path. Between 2013 and 2015, the country's unemployment dropped from 26.1 percent to around 22 percent. However, job creation is on the verge of slowing down in the coming months, and unemployment will likely still hover around 18 percent by 2017 — the second-highest figure in the eurozone after Greece. Those who are lucky enough to find jobs will have to navigate a labor market in which most new employment contracts are temporary. This will reduce workers' chances to save, access credit or plan for the future. Meanwhile, Spain will continue to struggle with the problem of long-term unemployment, which tends to erode workers' skills and motivation over time. Presently, about half the country's unemployed have been unable to find jobs for more than a year.
A slowing economy and pervasive unemployment will also make it harder for Spain to address its third challenge: deficit reduction. Madrid was originally supposed to bring its deficit below the EU target of 3 percent of GDP by the end of 2016. However, the Spanish government recently announced that it would not be able to reach its goal. Last year, Spain's deficit was equivalent to 5 percent of GDP; reducing it to 3 percent would require implementing severe austerity measures — in an election year, no less — that would be extremely unpopular and likely would slow the economy even more. Though Brussels probably will not sanction Spain for failing to meet its deficit target, Madrid will still have to show some commitment to meeting EU goals. But doing so will not be easy, since all of Spain's major political parties have based their campaigns, to different degrees, on the promise of increasing public spending. Madrid's next government will no doubt join Portugal and Italy in demanding greater room for expenditures, trapping the European Commission once more between the needs of Southern Europe's economies and the calls of Northern European countries to take a hard line against their Mediterranean peers.
The unresolved issue of Catalan independence will only complicate matters for the new Spanish administration. In January, Catalonia appointed a secessionist government that has promised to draft a constitution, create independent political and financial institutions, and eventually declare independence from Spain. Though the separatists have been relatively quiet over the past few months, waiting to see the composition of the central government before making their next move, Catalans want Madrid to authorize an independence referendum. But that is unlikely to happen, especially if the next government is composed of center-right forces. Either way, secessionist pressure will continue to build in Catalonia, adding to the political and economic uncertainty hanging over Spain.
Spain's Coming Political Evolution
In addition to the immediate challenges Madrid faces, a larger issue looms: Voters are becoming disenchanted with Spain's political system. As the December 2015 elections showed, the country's two-party system is evolving into a multiparty one as new political forces challenge the traditional elite. Since the beginning of Spain's economic crisis, rising unemployment, unpopular spending cuts and numerous corruption scandals have diminished popular support for the country's main political parties and institutions, enabling Podemos and Ciudadanos to eke out a bigger share of the vote. But Spain is still in the middle of its rocky transition; the newer political parties are not yet strong enough to govern in their rivals' place.
Yet many Spanish voters are becoming unhappier with some of the country's key institutions. The value of the monarchy is being increasingly called into question, and much of the electorate (especially voters on the left) would like to see Spain become a republic. Moreover, Catalonia and to a lesser extent the Basque Country are displeased with Spain's centralist fiscal system, in which the bulk of taxes are collected and redistributed by the government in Madrid. But reforming the country's political system would only be possible with broad consensus in parliament — something that is unlikely to materialize in the coming years, especially since some politicians view federalism as an attempt to weaken the central government that could jeopardize Spain's territorial integrity.
Meanwhile, the country's political and economic evolution will also affect its view of the European Union. EU membership played a critical role in Spain's transition to democracy in the early 1980s, as well as its modernization more broadly. Spain will remain committed to its membership in the bloc, which voters and politicians alike see as an important factor keeping the country together and providing some oversight in Madrid. Still, the eurozone has created its own headaches for Spain by removing Madrid's ability to devalue its currency to address unemployment and a lack of competitiveness abroad.
Spain probably will not lead the charge among EU members in questioning the process of Continental integration. But it will join France and Italy in demanding more room for public spending and greater leniency for deficit and debt targets. It will also request debt mutualization in the eurozone and defend the European Central Bank's expansionary monetary policies. Though Spain will continue to be pro-Europe, its unrelenting economic woes will create fertile ground for the country's populist forces, whose calls for confronting the European Union will only get louder.
