Spain's Sanchez Strengthens Grip on Power With Budget Victory

(Bloomberg) -- Spanish Prime Minister Pedro Sanchez secured enough votes to pass his budget for next year, a major win that cements political stability as he tries to bolster an economy slowly emerging from the pandemic.

Esquerra Republicana agreed to back the 2022 budget bill, the Catalan nationalist party’s caucus leader, Gabriel Rufian, said Tuesday at a news conference in Madrid. That guarantees at least 176 votes, the minimum the government needs to get the bill through the lower house of parliament this week.

The agreement paves the way for Sanchez to pass his second budget in as many years after political divisions and internal bickering scuppered the three previous spending plans. The Socialist leader heads a weak coalition government that relies on occasional support from an array of smaller parties.

“This is really important in terms of government stability and makes the possibility of early elections in 2022 very slim,” said Laurence Allan, an analyst with IHS Markit in London. “Just look next door at Portugal, where the government had to call early elections after it failed to approve the budget.”

The expansive program for next year, with a spending ceiling of 196 billion euros ($221 billion), is key for Sanchez’s minority government to stoke a rebound that has lost some momentum. The parliamentary victory could also help him move ahead with thorny labor and pension reforms needed to unlock billions of euros in European funds.

Sanchez is betting on a stronger recovery to prop up his approval ratings that have dipped ahead of the national election likely in 2023.

Once expected to grow at its fastest pace in more than four decades this year, Spain has struggled to recover from the damage wrought last year by the pandemic. Weak domestic consumption and tepid retail sales have slowed the rebound, prompting a wave of forecast downgrades with markets expecting an expansion of less than 5% in 2021.

The government has nonetheless held off cutting its growth estimates in the budget of 6.5% and 7% in 2021 and 2022 respectively. It expects the public-sector deficit in 2022 to narrow to 5% of gross domestic product from 8.4% this year.

Last year, Spain reported a budget deficit of 11% after the EU suspended requirements that national governments meet deficit and debt targets through 2023.

Central-government expenditures surged 54% last year as the administration spent heavily on a furlough plan to protect jobs, and on a loan-guarantee program that kept credit flowing to many small- and medium-sized businesses.

The 2022 spending ceiling -- or maximum state outlays excluding regional and local governments -- of just over 196 billion euros includes some of the nearly 70 billion euros in grants that Madrid will receive from the EU in the coming years.

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