Spain

Politics:

• Analysis

  Spain politics: Why Spain's left is in a funk

  Spain's Socialists: Why Spain's left is in a funk

  The party leader struggles to put the government's unpopularity to use

  ALFREDO PÉREZ RUBALCABA, leader of Spain's beleaguered opposition Socialists, is a man with a noose around his neck. It is slowly tightening. More than a year after his party lost power its poll ratings remain below those of Mariano Rajoy's Popular Party (PP). They are five points down on their November 2011 election result, standing at just 23%.

  This is remarkable. Spain's economy has tumbled deeper into recession under the premiership of Mr Rajoy. A further 700,000 people have joined the dole queues, pushing unemployment to 26.2% of the workforce. And as the value of their homes falls further, frightened Spanish consumers are keeping purses zipped tight. Many must raid savings to get by.

  Wage earners and pensioners are all getting poorer. Of the more needy, 1.9m unemployed do not receive state benefits. And, as Spaniards digest tax rises and spending cuts, protests from health, education and other public workers are a daily occurrence.

  Mr Rajoy's PP, meanwhile, is engulfed in a corruption scandal. The man he appointed party treasurer, Luis Bárcenas, hid EUR22m ($28.5m) in Switzerland. Newspapers allege he ran a secret party slush-fund with senior PP noses in the trough. Promises of green pastures further down the road of austerity have yet to convince voters. The PP's poll ratings have fallen from 45% to 24% since the election.

  So why are the Socialists not storming ahead? Many Spaniards blame them for the current mess. A once buoyant economy crashed on the watch of José Luis Rodríguez Zapatero, a Socialist prime minister. Mr Rubalcaba, as deputy prime minister, was associated with the debacle. The party, meanwhile, is digging its own grave. Its Catalan wing rebelled in parliament recently, backing Catalonia's "right to decide" on its future. That scares Socialist voters in other parts of Spain. But Mr Rubalcaba's opposition to the idea puts off potential supporters in Catalonia, where Mr Zapatero anchored his victories. A messy town-hall coup in northern Ponferrada, which saw local Socialists ally with the convicted protagonist of a nasty sexual harassment case, showed the party in further disarray.

  Mr Rubalcaba himself remains a problem. He has clung to the top job despite leading the party to an historic defeat in 2011. The 61-year-old veteran not only bears the Zapatero stigma, but also that of a minister in Felipe González's 1990s governments. He is hardly a bright new broom for jaundiced left-wing voters. Some party leaders say so openly. "Many others agree with me," said Tomas Gómez, a prominent rebel who heads the Madrid party branch.

  Mr Gómez may fancy himself as a candidate for the premiership, as does Patxi López, the popular former Basque regional president. Better bets are a former defence minister, Carme Chacón, aged 42, or one of the party's parliamentary bosses, Eduardo Madina. Ms Chacón was narrowly beaten for the leadership by Mr Rubalcaba at a conference last year. She broke ranks with her Catalan colleagues to abstain in the vote on the "right to decide" in a tactical bid to stay in the running. Mr Madina is just 37, yet still experienced. He also wins sympathy for overcoming a terrorist bomb attack that blew off part of his leg. But he might not yet want the job.

  Analysts predict that the economy will shrink by 1.5% this year; recovery in 2014 is uncertain. The European Commission expects unemployment will still be stuck above 26% next year. Elections will probably be held at the end of 2015. Austerity-exhausted Spaniards may demand change. But if the Socialists want power, they probably need a new leader.

  March 23, 2013

• Background

  Spain: Political forces at a glance

  Political outlook: Political forces at a glance

  Government: The conservative Popular Party (PP), led by Mariano Rajoy, was elected for a four-year term in the November 2011 general election. It enjoys an absolute majority in the lower house of parliament, the Congress of Deputies. However, recent electoral drawbacks and the unpopularity of its economic and social programme suggest that the PP's popular support is waning.

  November 2011 general election results
  	No. of seats		% of vote
  	2008	2011	2008	2011
  Popular Party (PP)	154	186	39.9	44.6
  Spanish Socialist Workers' Party (PSOE)	169	110	43.9	28.7
  Convergence and Union (CiU)	10	16	3.0	4.2
  United Left (IU)	2	11	3.8	6.9
  Amaiur	0	7	0	1.4
  Union, Progress and Democracy (UPyD)	1	5	1.2	4.7
  Basque Nationalist Party (PNV)	6	5	1.2	1.3
  Catalan Republican Left (ERC)	3	3	1.2	1.1
  Galician Nationalist Block (BNG)	2	2	0.8	0.8
  Canary Islands Coalition (CC)	2	2	0.7	0.6
  Compromís	-	1	0	0.5
  Citizens' Forum (FAC)	-	1	0	0.4
  Geroa-Bai	0	1	0	0.2
  Others	1	0	4.3	4.6
  Total	350	350	100	100
  Note. CiU is a coalition of two centre-right Catalan nationalist parties; IU is a left-green coalition; Amaiur is a left-wing separatist Basque coalition and considered the political wing of Euskadi Ta Askatasuna (ETA), the terrorist group that called a definitive ceasefire in October 2011; UPyD is a liberal ant-nationalist party; PNV is a centre-right Basque nationalist party; ERC is a Catalan separatist party; BNG is a left-wing Galician nationalist coalition; CC is a diverse regional coalition from the Canary Islands; Compromís is a green-left regional party from Valencia; Citizens' Forum is a regional party from Asturias; Geroa-Bai is a regional party from Navarra.

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  Next elections: The next general election is due by November 2015, and the Economist Intelligence Unit does not expect early elections to be called. A European Parliament election will be held in mid-2014. The majority of regional elections will be held in 2015, while Andalusia, Catalonia, Galicia and the Basque Country have different electoral cycles.

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  July 25, 2012

• Structure

  Spain: Political structure

  Official name

  Kingdom of Spain

  Form of state

  Constitutional monarchy

  Legal system

  Based on 1978 constitution

  National legislature

  Bicameral Cortes (parliament): the Senate has 264 members, 208 directly elected and 56 appointed as regional representatives, but with little influence; the Congress of Deputies has 350 members, elected from closed party lists in individual constituencies

  Electoral system

  Universal suffrage over the age of 18

  National elections

  General election held on November 20th 2011. Next election due in 2015

  Head of state

  King Juan Carlos

  State legislatures

  17 autonomous community (regional) parliaments

  National government

  Council of Ministers headed by the president (prime minister), who is appointed by the king, but must win investiture vote in parliament. Mariano Rajoy, the leader of the Popular Party (PP), was sworn in as president following the PP's election victory in November 2011

  Main political parties

  Popular Party (PP); Spanish Socialist Workers' Party (PSOE); United Left (IU), including the Communist Party (PCE); Convergence and Union (CiU), a centre-right Catalan nationalist federation; the centre-right Basque Nationalist Party (PNV); Amaiur, a left-wing separatist Basque coalition which is seen as incorporating the political representatives of Euskadi Ta Askatasuna (ETA), the terrorist group that called a definitive ceasefire in October 2011; Catalan Republican Left (Esquerra Republicana de Catalunya-ERC), a left-wing Catalan separatist party; Canary Island Coalition (CC); Galician Nationalist Block (BNG); Union, Progress and Democracy (UPyD), a centre-left anti-nationalist party

  The Council of Ministers

  Prime minister: Mariano Rajoy Brey

  Deputy prime minister, minister of presidency & government spokesperson: Soraya Sáenz de Santamaría

  Key ministers

  Agriculture, food & environment: Miguel Arias Cañete

  Defence: Pedro Morenés

  Economy & competitiveness: Luis de Guindos

  Education, culture & sport: José Ignacio Wert

  Employment & social security: Fátima Báñez

  Finance & public administration: Cristóbal Montoro

  Foreign affairs & co-operation: José Manuel García-Margallo

  Health, social services & equality: Ana Mato

  Industry, energy & tourism: José Manuel Soria

  Interior: Jorge Fernández Díaz

  Justice: Alberto Ruiz-Gallardón

  Public works: Ana Pastor

  Central bank governor

  Miguel Ángel Fernández Ordóñez

  March 12, 2013

• Outlook

  Spain: Key developments

  Outlook for 2013-17

  • The Popular Party (PP) has an absolute majority and is expected to govern until the parliamentary term ends in late 2015. Social unrest will remain high and could affect the economy and political stability.
  • The government's main focus will be to implement the fiscal, financial and structural reforms to which it has committed itself, in compliance with the bail-out of the banking sector, and to attempt to avoid a sovereign bail-out.
  • Spain has been able to tap markets significantly in recent months, which could allow it to delay further, or possibly even avoid, a sovereign bail-out; although there is a strong risk that market sentiment could deteriorate rapidly.
  • A sovereign bail-out would be likely to take the form of a credit line from European rescue funds and support from the European Central Bank (ECB), allowing Spain to avoid fully losing market access.
  • Spain applied for emergency financial support from its euro zone partners, which under the agreement would amount to up to EUR100bn (US$130bn), but less than one-half of this has so far been used.
  • The October 2012 European summit ruled out any retroactive direct recapitalisation by European rescue funds, and so the cost of the banking bail-out will be added to the government's debt, but not its deficit.
  • The Economist Intelligence Unit expects the government to miss by some margin its target of a budget deficit of 3% of GDP by 2014. The debt/GDP ratio will rise sharply as the government has to shoulder the bank bail-out alone.
  • The economy is expected to contract in 2013, partly as a result of harsh austerity measures. We forecast a return to real GDP growth in 2014-17, of less than 1% a year, mainly as a result of improvements in the external sector.

  Review

  • Spain's economic contraction worsened in the final quarter of 2012, with real GDP falling by a seasonally adjusted 0.8% quarter on quarter, and by 1.8% year on year.
  • The amount of doubtful loans on Spanish financial institutions' balance sheets fell sharply in December as a result of the transfer of troubled assets to the country's "bad bank", Sareb.
  • Following its success in issuing a US$2bn five-year bond on February 19th, the Treasury was able to tap the markets again two days later, issuing more than the targeted EUR4bn in medium- and long-term debt at reasonable rates.
  • The number of bankruptcies rose by 27.1% in 2012, while the unemployment rate averaged 25.1% and continued to rise, to 26.2% in January 2013.

  March 12, 2013

Economy:

• Background

  Spain: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12b
  Population (m)	46.3	Population growth	0.4a
  GDP (US$ bn; market exchange rate)	1,370.8b	Real GDP growth	-1.3
  GDP (US$ bn; purchasing power parity)	1,494.0	Real domestic demand growth	-3.3a
  GDP per head (US$; market exchange rate)	29,595	Inflation	1.8
  GDP per head (US$; purchasing power parity)	32,253	Current-account balance (% of GDP)	-4.7
  Exchange rate (av) €:US$	0.78b	FDI inflows (% of GDP)	2.2
  a Economist Intelligence Unit estimates. b Actual.

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  Background: After the death of General Franco in 1975, Spain embarked on a political transition to democracy. Following the legalisation of political parties, the first free election for 40 years was held in 1977. In 1978 a referendum approved a new democratic constitution and repealed many of the laws of the Franco era. In 1986 Spain joined the European Community (now the EU). Spain was one of the founder members of European economic and monetary union (EMU) in January 1999.

  Political structure: Spain is a constitutional monarchy. The king, Juan Carlos, will be succeeded by his son, Felipe. The parliament, or Cortes, is bicameral, but effective power resides in the 350-seat Congress of Deputies (the lower house). The Senate (the upper house) has 208 directly elected members and 56 regional representatives. Parliament is elected for a maximum term of four years. Alongside Germany, Spain is the most decentralised large country in the EU, but demands for greater autonomy by Catalonia and the Basque Country are a source of political tension.

  Policy issues: Economic policy will remain focused on facilitating a recovery and on improving the public finances and reassuring investors, notably about the banking sector. The government will continue to implement reforms aimed at improving fiscal sustainability and the long-term performance of the economy, such as labour market and public pension reforms, but rigidities are likely to remain. Fiscal consolidation pressures will push the government to focus efforts on increasing efficiency in the public sector.

  Taxation: The top rate of personal income tax increased in several regions in 2011, but not nationwide, so the typical rate remains at 43%. The standard rate of corporation tax has stood at 30% since 2008. The flat rate of tax on capital income, which was previously 18%, was split into two brackets from July 2010. Capital income up to a EUR6,000 (US$7,800) limit is taxed at a rate of 19%; income above this threshold is taxed at a rate of 21%. The standard rate of value-added tax (VAT) was raised from 18% to 21% in September 2012.

  Foreign trade: The share of GDP accounted for by exports of goods and services was 30.3% in 2011, and that of imports was 31.1%. The current-account deficit totalled US$52.3bn (3.5% of GDP) in 2011.

  Principal exports 2011	% of total	Principal imports 2011	% of total
  Machinery & transport equipment	34.0	Machinery & transport equipment	27.1
  Food, drinks & tobacco	13.4	Mineral fuels, lubricants & related materials	20.8
  Chemicals & related products, n.e.s.	13.2	Chemicals & related products, n.e.s.	14.4
  Mineral fuels, lubricants & related materials	7.5	Food, drinks & tobacco	9.5
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  France	17.7	Germany	12.5
  Germany	10.1	France	11.4
  Portugal	7.9	Italy	6.8
  Italy	7.8	China	5.9
  EU	67.7	EU	54.6

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  March 12, 2013

• Structure

  Spain: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 12, 2013

• Outlook

  Spain: Country outlook

  Spain: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The prime minister, Mariano Rajoy, leads a strong and stable centre-right Popular Party (PP) majority in the Congress of Deputies (the lower house) and is expected to remain in power until the end of the four-year parliamentary term in 2015. The government will continue to implement wide-ranging austerity measures in the coming years. However, extensive labour market reform and spending cuts, which tend to affect the least well-off in Spanish society, are fuelling social discontent. Although anti-European sentiment is still comparatively low, the social situation is relatively unstable and unrest could flare up at any time. Periodic protests have taken place since the start of the crisis, but recently they have not been as widespread as the first protests in May 2011. The painful austerity measures implemented by the current government, combined with several legal cases of corruption and illicit financing involving high-ranking politicians, may well lead to a revival of political unrest during the warmer seasons.

  ELECTION WATCH: In addition to an absolute majority in parliament in November 2011, the PP secured victory in each of the 13 regional parliaments where elections were held in May 2011, and outright majorities in eight of them. Although it has since lost momentum domestically, facing further unpopularity as it implements fiscal austerity and structural reform, the PP was able to increase its support in the Basque Country and defeat the main opposition Spanish Socialist Workers' Party (PSOE) in Galicia at regional elections in October 2012, and to increase marginally its support in Catalonia in November 2012. Given its large majority in the national parliament, the PP is not expected to call an early election, and so the Economist Intelligence Unit believes that the next general election will be held in 2015. The PSOE leader, Alfredo Rubalcaba, will face a significant struggle to articulate a credible election-winning strategy, but is unlikely to be replaced soon.

  INTERNATIONAL RELATIONS: The country's position in Europe has been greatly weakened by its fiscal and financial difficulties. Negotiations over bank and sovereign bail-outs have put Spain in a delicate situation, whereby it has been forced to adopt EU-dictated policies, although without presenting them as such. It will take several years at least before Spain can hope to regain a stronger voice in EU developments, but it will remain a supporter of moves towards greater European governance and closer fiscal co-operation.

  POLICY TRENDS: Spain has officially applied for a banking sector bail-out. The Economist Intelligence Unit continues to expect the country to apply for a sovereign bail-out in 2013, although--given that the government has been able to tap markets significantly at reasonable rates in recent months--it could delay this until the second half of the year, or possibly avoid doing so altogether if the economy improves sufficiently. Under a bail-out agreement, the government's main challenge would be to meet the attached conditions, which would be likely to include tough fiscal targets.

  ECONOMIC GROWTH: Spain faces a protracted adjustment as it undergoes a correction of the imbalances accumulated during its decade-long boom to 2008, which include a burst house-price and construction bubble, overindebted consumers and a fragile banking sector. The economy has fallen back into recession, contracting quarter on quarter since the fourth quarter of 2011. We expect fiscal austerity and rising unemployment to keep it in recession in 2013 at least. The recession has so far not been as harsh as expected, but there is a risk that it may become deeper and more prolonged than forecast. Weak growth is expected in the second half of the forecast period, at an annual average of less than 1% in 2014-17, but this outlook has significant downside risks.

  INFLATION: Inflation will be restrained by spare capacity in the economy and the fact that wage growth will be held back by the need to regain competitiveness. However, high global commodity prices, the introduction of co-payment for medicines and a rise in the value-added tax (VAT) rate will put upward pressure on consumer prices, which rose by 2.4% (EU harmonised measure) on average in 2012, despite weak demand. The annual rate of inflation is forecast to slow only marginally in 2013, as a result of tax increases, to 1.5%, but falling demand will lead to a sharp deceleration of inflation in 2014, to 0.8%. Inflation should stabilise at about 2% per year towards the end of the forecast period.

  EXCHANGE RATES: Although not our central forecast, there is a substantial risk that several countries will be forced to leave the euro over the medium term. Such fears partly explain the volatility of the single currency during 2012, when the euro fluctuated in a range between US$1.20:EUR1 and US$1.35:EUR1. Since September 2012 the promise of determined European Central Bank (ECB) action to safeguard the currency zone has helped to stabilise financial markets to a degree, and improved investor sentiment has underpinned a strengthening of the euro against the dollar. However, the euro will remain volatile in response to shifting risk appetite, protracted economic weakness and lower reserves accumulation by China. We expect it to average US$1.33:EUR1 in 2013 and US$1.28:EUR1 in 2014-17, but there is a significant risk of sharp movements either way.

  EXTERNAL SECTOR: The economy is undergoing a correction of the large current-account imbalance in 2003-07; the deficit shrank from 10% of GDP in 2007 to 3.5% of GDP in 2011 and an estimated 0.8% of GDP in 2012. The current account is expected to post a slight surplus in 2013, owing to a combination of weak domestic demand and growth in exports, and to continue to improve gradually during the rest of the forecast period. Banks will still be forced to restrain their lending, owing to difficulty in attracting capital inflows, although the ECB has made large amounts of liquidity available to them.

  March 01, 2013

• Forecast

  Spain: Country forecast summary

  Country forecast overview: Highlights

  • The conservative Popular Party (PP), led by Mariano Rajoy, is expected to remain in office until the end of the parliamentary term, in late 2015. Social unrest is widespread and may escalate as austerity measures affect living standards. As some regions lost market access, the government had to provide liquidity assistance, leading to an intense political row between federal and regional levels. Regional and nationalist sentiments will therefore continue to rise and could become a source of political instability.
  • The banking sector's plight forced Spain to access emergency financial support from its euro zone partners, which under the agreement would amount to up to EUR100bn (US$130bn). The October 2012 European summit ruled out any retroactive direct recapitalisation by the European rescue funds, so the cost of the banking bail-out will be added to the government's debt.
  • The Economist Intelligence Unit still expects Spain to apply for support during 2013, although the likelihood of the government delaying this (or even avoiding having to do so) has increased as it has been able to tap financial markets significantly in recent months. A programme would probably take the form of a credit line from the European Stability Mechanism (ESM), and so Spain would avoid complete loss of market access. This would allow the European Central Bank (ECB) to buy short- to medium-term bonds in secondary markets, thereby reducing yields for short-term debt. The bail-out would, however, entail additional painful austerity measures, potentially triggering further social discontent. The government will aim to negotiate and implement the fiscal, financial and structural reforms attached to the banking and sovereign bail-outs.
  • The successive austerity measures passed by the government, at a time of recession, are proving detrimental to the economy, and improvements on the spending side will hardly compensate for the fall in revenue. The general government deficit is expected to remain large, even without taking into account the bail-out of the banking sector. The deficit targets set in accordance with the European Commission will be missed. Public debt is forecast to rise sharply in the coming years, as a result of both large deficits and bank recapitalisation costs.
  • Our central scenario is that Spain will remain in recession in 2013, primarily owing to falling domestic demand. GDP growth will be subdued even in the second half of the forecast period. Significant downside risks remain, and the recession may be deeper and more prolonged than we forecast.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	-1.3	-1.7	0.1	0.8	1.1	1.2
  Consumer price inflation (av; %; EU harmonised measure)	2.4	1.5	0.8	1.4	2.1	2.1
  Government debt (% of GDP)	82.0	90.1	95.2	98.7	100.5	101.3
  Budget balance (% of GDP)	-7.3	-6.6	-5.5	-5.0	-4.4	-3.8
  Current-account balance (% of GDP)	-0.8	0.5	1.1	1.4	1.4	1.5
  3-month interbank rate (av; %)	0.6	0.3	0.6	1.1	1.8	1.8
  Exchange rate US$:€ (av)	1.29	1.33	1.31	1.27	1.26	1.26
  Exchange rate US$:€ (year-end)	1.31	1.32	1.31	1.26	1.26	1.26
  Exchange rate ¥:€ (av)	102.87	123.36	124.03	122.24	122.85	121.71

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  March 12, 2013

View detailed map

Country Briefing

Total area

504,880 sq km; including 30% arable, 8% permanent crops, 13% pasture, 33% forest

Population

46.2m (January 2012 official estimate)

Main towns

Population in '000 (January 2010)

Madrid (capital): 3,273

Barcelona: 1,621

Valencia: 809

Seville: 703

Climate

Mediterranean in east and south; temperate in north-west

Weather in Madrid (altitude 660 metres)

Hottest month, July, 16-32°C (average daily minimum and maximum); coldest month, January, 0-8°C; driest month, July, 11 mm average rainfall; wettest month, October, 53 mm average rainfall

Languages

Spanish (Castilian), Catalan, Galician, Basque

Weights and measures

Metric system

Currency

Euro (EUR) = 100 cents

Fiscal year

Calendar year

Time

One hour ahead of GMT

Public holidays

Nationwide public holidays are January 1st and 6th, Good Friday, May 1st, August 15th, October 12th, November 1st, December 6th and 8th, December 25th. Regions and municipalities also set a number of other labour holidays in their territories

January 17, 2013