Madrid-Brussels Express

Spain saw 2016 come to an end with a new government in office and encouraging data as to its economic recovery. This positive end to the year was also marked by the rather unnoticed 30th anniversary of the country’s entry into the European Union, an accession that has brought about much wealth and prosperity. With 2017 already starting, the country could do well to focus on three key points:

1) Deliver on the economic front

Despite Spain’s growth rate of 3.3% in 2016 (as announced by the government earlier this week), the economic recovery is expected to slow down somewhat in 2017. The government has an ambitious target to meet with regards to the country’s deficit, and the question remains as to whether reducing the deficit will have a contractionary effect on economic growth. The challenge lies in finding the formula to reduce deficit that will be compatible with growth in the long term; this could be with achieved with quality public spending in education, public investment or fostering digitalisation. The Spanish media have recently warned that analysts are not buying Rajoy’s promises and they expect his government to default on its commitments.

In any case, the approval of the Budget Act is the first major hurdle to overcome, without which the Prime Minister said he would call for new elections. The main difference with previous years is that there is a minority government that needs to bring other parties on board to pass the budget. So far, its announcement to raise and introduce new taxes has not gone well with the opposition; the government will have to find a common ground with PSOE and Ciudadanos. This might involve more spending in addition to the increased revenues, such as the agreement reached to increase minimum wage.

In addition, the outcome of the negotiations for the budget could set a precedent for other economic reforms Rajoy has to tackle in the course of the legislature and which will prove no easy feat for a minority government with little support (reform of the labour market, pensions, etc.).

Even if the economic reforms are finally approved, the government should work even harder to ensure the recovery is felt throughout the country. Despite the encouraging forecasts, the OECD’s latest Income Inequality Update of November 2016 showed that Spain is one of the countries where the inequality gap has most risen since the crisis and the richest 20% is further away than ever from the poorest 20%.

2) Shape up on European values

With the 60th anniversary of the signing of the Treaty of Rome coming up in March, it’s a good time to reflect on the progress the European countries have made since the creation and development of the European Union.

At a time when the EU is being attacked on so many fronts, the European values that have bound together its members for the last decades are more important than ever. Solidarity is one of them, and it requires that the EU and its Member States wake up on the refugee crisis. The Maltese presidency has made it clear that its priorities for its six-month mandate include social inclusion and migration. The latter involves implementing the refugee quota programme, an area where Spain has a lot of work to do: according to a report by CEAR, by December the country had only taken in 5% of the total number of refugees it should according to its quota.

Dastis, Spain’s new foreign minister and up to now head of the Spanish Permanent Representation to the EU, recently said that the country will be up to date with its commitments by September 2017. Playing its role (even if it is a relatively small one in the case of Spain) in the management of the refugee crisis is an obligation of every member state. Rajoy made it clear from the onset of the legislature that European affairs were top priority for his government: this is the perfect occasion to prove it.

3) Pull its weight in the major milestones of the year

If as the saying goes, 80% of success is just showing up, Spain could expect this new year to be a hit. Compared to almost a full year of political paralysis and an acting government with its hands tied in most political decisions, in 2017 the government can and should be at the table of the major events lining up.

Brexit is of course at the top of the list, but there are other key issues. Elections in Germany, the Netherlands and France can potentially shake the EU to its core if the results yield euroskeptic leaders who do not believe in a common European agenda. This will require a united front from pro-European governments in other Member States which Spain must join and impulse.

Changes are also expected in the EU institutions. The upcoming elections for President of the European Parliament, and the re-election (to be confirmed) of Donald Tusk as President of the European Council are relevant for Spain. If both EPP’s Antonio Tajani, the current favourite to head the European Parliament, and Donald Tusk are appointed leaders of the Parliament and the European Council, the three institutions would be chaired by the same political party – the party that the current Spanish government belongs to. The result of these internal elections could have an impact on how much leeway Spain is given when the time to assess its reforms comes.

And finally, but definitely not less important, major policy challenges that will be further developed this year require Spain’s full attention. In particular, the completion of the digital single market and its effect on competitiveness and jobs is of vital importance for the country: it is lagging behind in digital skills and Internet use. Improvement in both could be key for more job creation, particularly amongst the highly unemployed youth.

 

2017 promises to be a full year – and Spain should rise to the occasion.

 

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