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The Policy Implications of Spain’s Election

Analysis on Spain’s troubled situation, and how the upcoming elections will determine its economic policy for the year ahead.

On November 20th Spaniards will go to the polls. Barring an epic upset, Mariano Rajoy of the center-right Popular Party (PP) will be the country’s next Prime Minister.

Many Spaniards have grown tired hearing that the Socialist party (PSOE), which has been in power since 2004, has an answer to the country’s severe economic crisis.

They don’t.

Unemployment in Spain currently sits at more than 20 percent, the highest in the European Union and more than twice the EU average. The inability of the Socialists to deal with Spain’s economic woes has disappointed many. From the beginning, former Prime Minister Jose Luis Rodríguez Zapatero denied and then downplayed the severity of the crisis by telling Spanish citizens that Spain’s problems were more of a bump in the road than a reflection of deeper, more structural difficulties.

In early 2009, there was widespread debate in the Spanish press about whether unemployment would reach four million. Prime Minister Zapatero and others repeatedly assured their countrymen that that high a number was out of the question. Right now, more than five million Spaniards are out of work.

According to Eurostat, youth unemployment (for people under twenty-five) was at 48 percent in September of this year, also the highest in the EU. (Greece is the only other country even close to Spain).

Mariano Rajoy has spoken consistently of his plans for much-needed economic reform. He should start by making it easier for businesses to hire and fire people.

Traditionally, Spain has been a country of small and medium-sized businesses; many would argue that these groups have been neglected by the Socialists.

There are a few more things to consider. First, will the PP get an absolute majority in Congress? Many polls have indicated that they will, but one can never be sure until all the votes are counted. If this does happen, reforming Spain’s economy becomes far more feasible, as Rajoy and company will not be compelled to negotiate with various regional parties (at times intransigent) or worry about placating even smaller ones.

If the PP are unable to obtain that absolute majority, real economic reform and seriously increasing labor market flexibility should not be viewed as foregone conclusions. This is unfortunate.

The other issue has to do with the Spanish psyche, a much more ambiguous concept.

Spanish moderates might be sick of the Socialists, at least for now. However, moderates’ dissatisfaction with Spain’s center-left party does not necessarily mean that those people are prepared to embrace a conservative agenda. Will a majority of Spaniards (particularly Spanish youth) support sustained and significant economic reforms?

Like many other developed countries, Spain’s model for the provision of social services is anachronistic.

People are living longer, the country’s fertility rate is low and the birth rate has declined dramatically over the past few decades. For the time being, immigration is an insufficient means to address all of this; Spain cannot ignore its own demographic constraints.

In short, the social safety net, including overly generous pensions, which many have enjoyed, cannot be replicated for young Spanish voters. The government’s raising of the retirement age (from 65 to 67) this past January was a good start.

There are many policies to implement, but labor market reform should be pushed through Congress relatively quickly.

A Rajoy government’s attempt at further reforms should not produce kneejerk rioting and protests by twentysomethings in Madrid or Barcelona.

Rather, it should encourage thoughtful reflection about the kinds of problems Spain is currently dealing with, and how best to deal with them. Spain’s Indignados must understand that implementing reforms is often a delicate balancing act and, many times, sacrifices must be made. The revolution that Spain needs will not occur overnight.

Denigrating capitalism, lamenting the country’s two-party system, protesting against welfare cuts and complaining about stubbornly high unemployment are, at least, points that can be debated.

Nevertheless, these sorts of outcries must turn into more articulate policy prescriptions at some point. And, in order for Spain to get out of this mess, more austerity will need to be part of the equation. Further debate, drama and disagreement are sure to come. In times of crisis, strong leadership is paramount.

Irrespective of how Rajoy responds, 2012 will be a fascinating year for Spanish politics.

*[This article was previously published in The Journal of Foreign Relations.]

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.