Spanish Pact Combines Worst of Both Worlds

The Socialists get labor reform. The liberals block a referendum on Catalan independence.

Spain’s Pedro Sánchez may have been clever to form a pact with the liberal Ciudadanos on Tuesday and dare the other parties to reject the deal; the coalition agreement itself is the worst of both worlds.

This website argued yesterday that the Socialist Party leader had outmaneuvered both his far-left rivals and the man he hopes to succeed as prime minister, Mariano Rajoy.

The latter, whose People’s Party lost its majority in December’s election, was waiting for Sánchez to fail at forming a government, assuming that the left-wing leader would never bridge the gap between the pro-business Ciudadanos and the anti-establishment Podemos movement. The Socialists need the support of both for a majority.

By doing a deal with the Ciudadanos first, Sánchez puts pressure on Podemos to either back the most progressive government Spain is likely to get or make common cause with Rajoy’s conservatives — whose austerity policies they have reviled.


The deal itself, though, is ugly.

The two parties vow not to raise taxes on low and middle incomes but do call for a new tax on wealth.

All the same, they want yet more time from the rest of the eurozone to reduce Spain’s budget deficit, which has exceeded the treaty ceiling of 3 percent of gross domestic product for the last eight years.

Labor reforms

Most damagingly, the pact makes good on a Socialist Party campaign promise to scrap Rajoy’s labor reforms.

The right has 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, 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.

The reforms have also helped shrink the gap between often older workers on secure contracts and youngsters who can only find temp jobs with less benefits.

The Ciudadanos and the Socialists do intend to reduce the number of job contracts that can be used by employers.

But their program does not include a commitment to introduce a single employment contract, despite this being a signature liberal policy proposal.

With one in five Spaniards still out of work and youth unemployment at almost 50 percent, reversing labor market liberalization is about the worst thing the next government could do.


In return, the Ciudadanos get a commitment from the Socialists to block a referendum on independence in their home region, Catalonia.

Separatist parties there have a narrow majority and are determined to break away from Spain next year.

Podemos argues that a formal referendum, which Rajoy’s People’s Party denied the Catalans while it was in power, is the only way to break the gridlock.