Spain Set for First Budget in Three Years After Catalan Pact

Spanish Prime Minister Pedro Sanchez clinched the votes he needs to pass his 2021 budget, a hard-fought political victory for the premier that will allow Spain to channel tens of billions of euros in European Union recovery funds into its ailing economy.

Esquerra Republicana, a pro-independence party from the region of Catalonia, will vote in favor of Sanchez’s spending plan for next year, giving him a parliamentary majority for a budget for the first time, the Catalan group’s national coordinator, Pere Aragones, said. Lawmakers are expected to vote on the package before the end of the year.

Spain Set for First Budget in Three Years After Catalan Pact

“This is not a blank check,” Aragones, who is also acting president of Catalonia, said at a press conference in Barcelona Wednesday. “We have sealed a demanding agreement.”

Sanchez’s Socialists govern in a minority coalition with the far-left Podemos and have been operating with a spending plan passed by his conservative predecessor since taking office in 2018. For months, they’ve been battling for their own program to deliver a fiscal jolt to the Spanish economy, which is expected to contract more sharply this year than any other in the euro-area. Spain is set to be one of the biggest recipients of a landmark package of EU recovery funds and Sanchez’s budget includes plans to invest 27 billion euros ($32 billion) of those grants in 2021.

Sanchez’s government has said it expects its budget to underpin economic expansion next year of nearly 10%, if the European funds are included. The Bank of Spain and other institutions have said that projection is a bit rosy and that more details on the investment projects are needed, while economists have warned it will be a challenge for Spain to spend such an unprecedented amount of stimulus effectively.

The center-right People’s Party headed the last administration to secure support for a budget in Spain shortly before it was ousted by Sanchez and the country hasn’t seen a full budget approved on time since 2015.

The support from Esquerra Republicana’s 13 lawmakers gives 48-year-old Sanchez 179 votes in the 350-member Spanish parliament. Other groups that have pledged their support include 11 lawmakers from two Basque regional parties, PNV and Bildu. The Socialists and Podemos have 155 lawmakers in their government.

Aragones said that his deal with the government meant that Catalonia will receive almost 600 million euros of direct investment in 2021 with 371 million euros going to environmental policy and 225 million euros going to housing.

Sanchez’s success at cobbling together support from Basque and Catalan nationalist parties points to the potential staying power of his minority government, despite being short of votes in the legislature. He’s also aided by conflict between the main opposition parties since the emergence of the far-right group Vox.

Though Sanchez is close to securing formal support for his budget, EU member states still have to overcome the refusal of Hungary and Poland to unlock the recovery funds. Sanchez, though, has said he’s optimistic.

“I am confident that we are going to reach that agreement before the end of the year,” Sanchez said this week. “I don’t see any other option. The situation is dramatic on the health side -- and of course on the economic and social side -- across Europe.”

©2020 Bloomberg L.P.

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