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Spain’s 5 Major Political And Economic Challenges For 2020

Ten months after acting prime minister Pedro Sánchez called early elections on February 15, Spain still has no government. The political fragmentation has meant the end of the two-party system in the country.

16 political groups have achieved representation in the Spanish Congress and regional forces are more present than ever in the lower chamber.

Spain’s first coalition government

A new era of negotiations has come to stay in the Spanish political scene. 48 hours after the November ballot, the Spanish Socialist Party (PSOE) signed an agreement with the anti-austerity party Unidas Podemos “to form a progressive coalition.” The political blockade despite two general elections this year has put an end to the solo government tradition in Spain.

Most of the small and regional parties have given support to the leftist coalition but since the center-right group Ciudadanos, the conservative Popular Party (PP), and the far-right Vox will vote against it, Sánchez needs the abstention of the pro-independence Republican Left of Catalonia (ERC) to be elected prime minister in Parliament.

Relations between PSOE and ERC have been strained lately, especially after ERC’s leader Oriol Junqueras was sentenced to 13 years in prison over the independence referendum in Catalonia. However, the radicalization of the Spanish right-wing with the rise of Vox and the fear of a third election have pushed both forces to engage negotiations–94% of ERC’s militants voted in favor of supporting PSOE-Podemos’ coalition last month.

An agreement with ECR could be announced in the next few days. If so, it will be the first coalition government in Spain since the transition.  

Time for dialogue in Catalonia?

2019 has marked the peak of the Catalan crisis. After a long trial, Catalan separatist leaders were sentenced in October to between 9 and 13 years in prison over the 2017 independence referendum. The verdict triggered massive protests across Catalonia and violent clashes with the police that lasted various days drawing the world’s attention.

During the election campaign, both the right-wing forces and the Socialist Party hardened their discourse against Catalan separatism–Vox proposed to ban all nationalist parties while Ciudadanos and PP wanted to suspend the Catalan autonomy. The result was the pro-independence parties coming out stronger in the polls.

The political tension did not match the expectations of the majority of the Spanish people, who are in favor of a rapprochement with Catalonia. According to the Catalan Center for Opinion Studies (CEO), 68% of Spaniards prefer dialogue to resolve the Catalan crisis versus the 23% who support an “iron fist.”

Negotiations between PSOE and ERC open the door to a new period of understanding. ERC has so far left behind the idea of a unilateral declaration of independence, although insist in the need of a referendum –for which the Constitution would have to be changed.

A year to close the Gibraltar deal

The victory of Boris Johnson in the United Kingdom early this month has accelerated the negotiations between Madrid and London over their future relations post-Brexit and more concretely over the future of Gibraltar.

Both countries will hold technical meetings in Madrid on January 14 and 15 to address the main issues within Gibraltar deal: citizens’ rights (there are around 10,000 Spaniards working  in the rock), police and customs cooperation, the increase of the Rock’s price of tobacco to prevent the black market from rising, and environmental matters.

Once the Brexit becomes effective, different committees between Madrid, London, and Brussels will be formalized to discuss the details of these four areas. Delegations from both sides will have to reach an agreement to ensure an orderly exit of the UK by 31 December 2020, the last day of the transition period.

The ongoing unemployment and brain drain

The dark days of the economic recession were left behind a few years ago and Spain’s growth data surpasses that of major European powers. However, the crisis has left a desolate scenario for the Spanish labor market. According to data from the National Statistics Institute (INE), the unemployment rate in the third quarter of 2019 was 13.90%, affecting more than 3.2 million people.

Spain has the worst unemployment data in the EU–where the average is at 6.3%, – only ahead of Greece. It get worse for those under 25 years old, whose unemployment rate is currently at 31.7%. Job insecurity following the labor reform during the recession keeps suffocating Spanish youth, which salary fell by 15% between 2008 and 2016.

The millennial generation in Spain is still condemned by the austerity measures adopted before the economic recovery, which is causing a serious “brain drain”.

A recent study by the Brussels-based think tank CEPS has highlighted that Spain and Italy are the two EU countries where the so-called brain drain occurs the most. Between 2007 and 2017, some 87,000 highly qualified Spanish workers emigrated to other Member States, especially the northern ones. Unemployment and wages were the main reasons for leaving.

The acting government has announced the creation of a “Return Plan” to attract Spaniards who were forced to flee Spain after the economic crisis, especially university students (around the 80%).

Will global uncertainty impact on Spain’s economic growth?

For the last five years Spanish economy has been growing uninterrupted making possible to leave Brussels’ supervision over deficit behind. However, Spain’s resistance to global uncertainty could soon begin to fade.

At the beginning of 2019 the government’s forecast pointed an optimistic growth of 2.2% in 2019 and 1.9% in 2020. But last month the Organisation for Economic Co-operation and Development (OECD) noted that Spanish economy is slowing down faster than expected and reduced the forecast to 2% for this year and 1.6% for 2020.

Spain will still perform better than the eurozone average, including Germany, France, and Italy. But the less favorable international context can lead to unforeseen damage in 2020.

The U.K.’s withdrawal from the EU, the aim of Sánchez to introduce the Google tax despite possible U.S. tariffs if the coalition government succeeds, and the ongoing Airbus-Boeing WTO dispute may hit Spanish economy next year. Brussels’ continuity to back up EU Member States will play a decisive role in this context.

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