Spain’s Rajoy Bets on Growing Economy, Calls Elections

The Spanish leader hopes an improving economy will give his party a fighting chance in the election.

Spanish prime minister Mariano Rajoy answers questions from reporters in Madrid, August 7
Spanish prime minister Mariano Rajoy answers questions from reporters in Madrid, August 7 (La Moncloa)

Spanish prime minister Mariano Rajoy called parliamentary elections on Monday and vowed to step down unless his People’s Party defends its overall majority.

That looks like a tall order. Rajoy’s conservatives haven’t polled over 30 percent support since early 2013.

The Spanish leader waited until the last possible moment to dissolve parliament, hoping that an improving economy will give his party a fighting chance.

Growth is likely to come in at 3 percent this year, one of the highest rates in the industrialized world. Business and consumer confidence are finally improving and the unemployment rate is coming down. More than one in five Spaniards is still out of work but the rate is down from a 27-percent high two years ago.

Rajoy — elected in 2011 at the height of the European sovereign debt crisis — has seized on the numbers as a confirmation of his leadership, telling voters that “the most important thing now is not to change our economic policies.”

Vying to replace him are the Socialists who governed Spain from 2008 to 2011. They want to break with the austerity program of the right-wing government and could possibly form a coalition with one of the other two parties expected to win seats: the centrist Ciudadanos and the far-left Podemos.

Both would be problematic partners. The Ciudadanos are more liberal and have so far maintained they will not enter a coalition government. Podemos is an anti-establishment movement with zero political experience. Unlike the Socialist Party, it is also Euroskeptic.

All three opposition parties have criticized the economic reforms that are now bearing fruit.

Most controversially, Rajoy allowed companies to opt out of sectorial bargaining agreements and made it cheaper for them to fire workers by reducing severance payments.

Together with lower wages — which have slipped in nine out of fourteen quarters since Rajoy took office — the changes have made Spanish firms more competitive. Exports are up. They now account for 23 percent of economic output against 17 percent in 2007, the last time the People’s Party was in power.

Rajoy’s labor reforms also helped shrink the gap between often older workers on secure contracts and youngsters who can only get temp jobs with less benefits.

The conservatives also cut the procedures necessary to start a business, improving Spain’s ease-of-doing-business ranking. And they reduced the corporate tax rate from 30 to 28 percent. It is slated to fall to 25 percent next year which will be closer to the European Union average.

Still, the economy is 4 percent smaller today than before the crisis and youth unemployment remains staggeringly high at 48 percent. Rajoy can’t expect the Spanish to be thrilled.