(Bloomberg) -- It was all looking so good for Spain’s prime minister, Mariano Rajoy -- or as good as it could for the head of a minority government. He had successfully steered his budget through parliament, burnishing his credentials as steward of Spain’s economic expansion and smoothing his path to staying in office until 2020 when new elections are due. Now he’s set to be ousted by a no-confidence vote in parliament.
1. What made Rajoy vulnerable?
Corruption, a problem that’s bedeviled Rajoy’s People’s Party for a long time, flared up again. A National Court judge in Madrid ruled on May 24 that the party financed some of its electoral activities with proceeds from a decade-long illegal funding scheme that included tax evasion and embezzlement. The judge sentenced a former party treasurer, Luis Barcenas, to 33 years in jail and ordered the party to pay back more than 245,000 euros ($285,000).
2. What does that mean for Spain’s government?
A precarious balance of political forces that had held together Rajoy’s minority government for 18 months is crumbling -- though it’s not clear what the Socialists, the biggest opposition party, will build to replace it. Socialist leader Pedro Sanchez is on track to emerge as prime minister-elect by Friday night. Though the Socialists could stay in office until 2020, Sanchez has suggested he could call early elections. The liberals of the Ciudadanos party, which is rising in polls, want an immediate snap election. Rajoy could still trigger that if he decides to resign before the vote, but his party chief says he’s determined to stay the course.
3. Can the Socialists form a government?
So far, the Socialists indicate they would aim to lead a minority administration, anchored by their 84 seats in the 350-seat chamber. In the vote to oust Rajoy, they have worked with Catalan separatists, Basque nationalists in a group derided by Rajoy as a “Frankenstein coalition.” It also includes Podemos, the anti-establishment, anti-austerity party that grew out of street demonstrations against politicians and banks and exploded onto Spain’s political scene in 2014. (Podemos and the Socialists tried and failed before to overcome disagreements and form a government.) The 71 seats held by Podemos still wouldn’t be enough to give the Socialists a majority, meaning they would still require cross-party deals with others to pass legislation.
4. What would a Socialist-led government do?
Sanchez says he wants to lead a government that would clean up Spanish politics, undo some budget cuts to social programs enacted under Rajoy and normalize relations with Catalonia, which tried to break away from Spain last fall. In their 2016 election manifesto, the Socialists committed to continue reducing Spain’s budget deficit, only at a slower pace. Perhaps to some investor relief, Sanchez said his party would keep the People’s Party’s budget for 2018 unchanged. The Socialists also called for reforming the regional financing system, traditionally a source of tension between the wealthier and poorer areas in Spain, and said they would target new taxes -- including one specific for banks -- to pay for pensions.
5. What kind of economy would they inherit?
Spain’s economy has been a point of strength. While the financial crisis drove up income inequality, and many Spaniards that lost their jobs and found new ones are now working for less, Rajoy’s record of economic management was one of his strongest suits. Spain is on course to grow 2.7 percent this year, extending a spurt that began at the end of 2013 as the country emerged from financial crisis. The government sees the expansion continuing with growth of 2.4 percent next year and 2.3 percent in 2020 and 2021, driving down unemployment to 11 percent from 16.7 percent now.
6. Does this count as another of Europe’s populist uprisings?
No. The corruption allegations swirling around the People’s Party were certainly one of the reasons that explained the rise of Podemos, now the third-biggest party in parliament. But the calls to unseat Rajoy come from across the political spectrum. Unlike, say, Italy or Hungary, Spain is one of the most pro-European countries in the EU, and no major party has ever raised serious questions about membership in the bloc.
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