Spain’s Sánchez Seals Spending Deal with Far Left

The budget deal could keep the Socialist in power for another year.

Spanish party leaders Pedro Sánchez and Pablo Iglesias meet in Madrid, February 5, 2016
Spanish party leaders Pedro Sánchez and Pablo Iglesias meet in Madrid, February 5, 2016 (PSOE)

Spanish prime minister Pedro Sánchez has negotiated a spending deal with the far-left Podemos party that could keep him in power for another year.

Sánchez’ Socialist Workers’ Party does not have a majority of its own. In addition to Podemos, it leans on the support of regionalist parties in the Spanish Congress.

Some of them have mounted a challenge, though: the Catalans have proposed trading their support for a legal and binding referendum on Catalan independence. Sánchez has ruled that out.

He may just get his budget through if one of the Catalan parties abstains and parties from other regions vote with him. But it will be tight.

What’s in the deal?

  • The minimum wage goes up 22 percent, from €736 to €900 per month — the biggest hike in forty years.
  • Income tax rises for those earning €130,000 or more.
  • Education, housing, paternity leave, pensions and unemployment benefits get around €4 billion in extra spending.
  • Rent control is devolved to local governments.

How has it been received?

Business groups warns that the minimum-wage increase could lead to higher unemployment. Spain still has the second-highest unemployment rate in the EU, after Greece, at 15 percent.

Right-wing opposition parties argue that the extra spending is irresponsible when Spain still exceeds the European deficit limit of 3 percent of GDP and its public debt is on track to exceed 100 percent of GDP.

But the Socialists feel confident about increasing spending after three years of economic growth of 3 percent or more, the Financial Times reports.

Investors have also remained more relaxed about Spain’s plans than about Italy’s: the yield on Spain’s ten-year bonds has remained low even as Italy’s has spiked this year, reflecting more market confidence.