Spain’s new government in need of friends

He won a second term on Saturday (29 October) after the rival Socialist Party (PSOE) reluctantly abstained in a parliamentary vote of confidence to break the 10-month political stalemate.

With just 137 of 350-seats in parliament, Rajoy is 39 deputies short of the absolute majority, meaning his Popular Party (PP) will need support from other parties to pass next year’s budget and reforms.

Rajoy kept seven members of his previous cabinet, retaining his economic team which oversaw austerity measures, a bank bailout and a labour reform to make hiring and firing cheaper.

During his investiture speech on Saturday, Rajoy said he was prepared to negotiate each law but not “liquidate” reforms that had helped the Spanish economy out of a steep recession.

“Rajoy and his government will need to dialogue during this legislature and he doesn’t seem to realise that,” said PSOE spokesman Mario Jimenez. “Some of the ministers who’ve done the most damage are still in it.”

Rajoy reappointed economy minister Luis de Guindos, budget minister Cristobal Montoro and labour minister Fatima Bannez as well as deputy prime minister Soraya Saenz de Santamaria.

He brought in the PP's secretary-general, Maria Dolores de Cospedal, as defence minister.

“He should have brought in people with other political ideologies, people with different profiles and outlooks, independents, some younger people, something more innovative,” said Beatriz Becerra, a Spanish MEP form the liberal ALDE group.

“Rajoy’s new cabinet is a very political one,” agreed Antonio Barroso, analyst at political risk consultancy Teneo Intelligence.

The prime minister appointed six new ministers, including Alvaro Nadal, the head of his economic office, as minister for energy, tourism and the digital agenda. Nadal, 46, who speaks German, was Rajoy’s right-hand man for negotiations with EU partners over Spain’s 2012 bank bailout.

Need for support

Foreign minister Jose Manuel Garcia-Margallo, who has ruffled feathers in Britain and Gibraltar by saying the Brexit vote brings Spanish sovereignty of the British enclave closer, was replaced by Alfonso Dastis Quecedo, Spain’s EU ambassador since 2011.

Dastis is “a very capable negotiator, he will be the country’s voice in the upcoming Brexit discussions,” said Barroso.

In the Spanish parliament, Rajoy will need to build bridges with the opposition having governed for four years with an absolute majority in which he nevertheless regularly used decrees.

He has signed a 150-point pact with the small liberal party Ciudadanos (Citizens) to introduce measures like cleaning up politics, such as, an end to closed party lists which makes deputies less accountable to their electorate.

The PP lost its absolute majority in December largely because of allegations that party members took bribes from companies. Former treasurer Luis Barcenas, appointed by Rajoy, is currently on trial.

While the PP can turn to Ciudadanos for support, the party’s size means Rajoy will still likely need some Socialist support.

“It’s up to the Socialists to decide whether the government lasts four years or whether it’s a short one,” said Carlos Barrera, lecturer in political communication at the University of Navarra.

The new government’s most immediate task is to pass next year’s budget which will require about €5.5 billion of spending cuts or tax hikes to reduce the country’s 2017 budget deficit to the European Commission target of 3.1 percent.

“If they can’t pass the budget, they will have to roll over this year’s budget and there will be a substantial risk of another election next year,” said Angel Talavera, eurozone economist at Oxford Economics, a consultancy.

Opportunity for reforms

Barrera thinks eventually the Socialists will support the budget and other key laws out of a sense of statesmanship, but Talavera thinks the Socialists may find it difficult to support raising taxes after the “excruciating” process they went through to facilitate the government: their leader Pedro Sanchez was ousted and replaced by an interim caretaker committee, leaving the party deeply divided.

Business leaders urged the new government to build cross-party consensus to introduce long-term reforms to education and training and help to increase the average size of Spain’s small and medium-sized companies, following the example of countries like Germany.

It was time to cut duplications in the public administration and tackle the black economy, estimated to be 20 percent, said Javier Vega de Seoane, chairman of the Madrid-based Circle of Businessmen.

“This situation is an opportunity to tackle pending reforms which haven’t been tackled by absolute majorities,” said Anton Costas, chairman of the Barcelona-based think-tank Economy Circle.