Sanchez Faces Spanish Slowdown as Rivals Test Pact to Oust Him

(Bloomberg) -- Spanish Prime Minister Pedro Sanchez sought to shift the blame for an economic slowdown onto political opponents who could topple him from power if he is forced to call elections this year.

Economy Minister Nadia Calvino used an interview with RNE radio on Thursday to accuse the People’s Party of inflicting lower growth on Spain by blocking the government’s plan for a looser deficit target in 2019. The debate over growth and spending looks set to become a political battleground after the PP sealed a new right-wing alliance to take power in Andalusia.

As the head of a minority government that relies on the support of Catalan parties, the dilemma facing Sanchez is whether to cling on to power until the legislature ends in 2020 or call elections to try to strengthen his position. Blaming the PP for slowing Spain’s economic momentum after 20 straight quarters of growth may provide him with a narrative to take on political rivals emboldened by their victory in Andalusia.

“The Andalusian elections have introduced a new variable in Spanish politics,” said Ignacio Jurado, an analyst with political-risk consulting firm Quantio in Madrid. The accord brokered by the PP could open the door for a similar coalition in the national parliament in Madrid, he said.

Calvino said the growth assumptions underlying the budget have been trimmed to 2.2 percent from 2.3 percent because of a tighter fiscal stance. She pointed the finger at opposition lawmakers who vetoed the government’s initial deficit target of 1.8 percent of GDP, forcing Sanchez to stick to the 1.3 percent set by his conservative predecessor.

The cut in the growth estimate comes as Sanchez prepares to send his proposed 2019 budget to lawmakers next week, even though he lacks the votes to get his plan approved. If he fails to get it passed, he has indicated he may feel forced to call a snap election.

The PP last night secured its path to power in Andalusia by agreeing a governance pact with the liberals of Ciudadanos and Vox, an emerging right-wing party that combines fierce opposition to Catalan independence with tough policies on immigration and opposition to laws to protect women from gender violence. The Socialists have been in power in the region for 36 years.

The risk for Sanchez is that the anti-Socialist pact in Andalusia could be replicated at national level as his overtures to Catalan nationalists, whose support he needs to pass legislation, risks driving more voters into the Vox camp.

Recent opinion polls have shown Sanchez’s party with the most support but vulnerable to a PP-led right-wing alliance as hardening attitudes to the Catalan independence movement among Spanish voters propels the surge by Vox. A New Year poll by El Mundo newspaper showed Sanchez on course to name as many as 96 deputies to Spain’s 350-seat parliament with Vox coming from nowhere to win as many as 45 seats.

Juan Manuel Moreno, set to be voted in as Andalusia’s new PP president, said Thursday it was absurd for the Socialists to criticize its pact with Vox when Sanchez is prepared to negotiate with pro-independence “terrorists” in Catalonia.

Spain’s new economic estimate is in line with the outlook from the Spanish central bank and the consensus of economists. Calvino said if the government had been able to stick to its original plan, it would have raised its 2019 target because recent data has been surprisingly positive. As an antidote to years of cutbacks, it includes an increase in the minimum wage and a tax increase for higher earners.

Calvino said the government is optimistic about passing the budget despite lacking support from a majority of lawmakers. Questions surrounding the plan adds to an uncertain political panorama across Europe that’s exacerbating concern about an economic slowdown.

©2019 Bloomberg L.P.

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