Spain: Can left's economic plan reverse austerity?

June 3, 2016

United We Can.

United We Can — the united ticket made up of Podemos, the United Left, the green party Equo and three broader alliances in Catalonia, Galicia and the Valencian Country — is campaigning in the June 26 Spanish general elections on a plan to reverse economic austerity.

Is the new alliance's plan up to the huge job? What chances of success can it have against the opposition of the Spanish and European powers-that-be? Indeed, is a capitalist Spain (and Europe) without austerity even conceivable in a world of intensifying international economic rivalry?

These big issues — discussion of which so far has been mainly restricted to the more politicised parts of Spanish society — were not a decisive part of the campaign for the December 20 elections. Those elections failed to produce a government, forcing new elections, to be held on June 26.

However, a June 1 opinion poll confirms that United We Can continues to lead the social-democratic Spanish Socialist Workers Party (PSOE). The poll gives United We Can 84 seats in the 350-seat parliament (24.1% of the vote) to PSOE's 83 seats (21.7%).

At the same time, the poll has the total number of seats going to the right — the ruling People's Party (PP) plus the new-right Citizens — falling from 163 to 156.

The increasingly possible scenario of a broad left relative majority headed by United We Can means the PP, PSOE and Citizens are seeking to whip panic about its “mad” and “dangerous” economic policies.

The PP is seeking to win back voters who had deserted to Citizens in disgust with PP corruption; Citizens is seeking to appear as tough on “economic irresponsibility” as the PP; and PSOE has to concoct some sort of economic rationale for potentially joining a grand coalition with the PP over a left coalition with United We Can.

Growth plan

At first glance, United We Can's economic proposals in its document “Changing Spain: 50 Steps For Governing Together” appear modest — the minimum necessary. With unemployment still at 21%, youth unemployment at 45.5%, inflation at -1% and what growth there has been over the last two years starting to slow, wouldn't even a conservative government contemplate an expansionary policy in such a context?

Not the acting PP government of Prime Minister Mariano Rajoy. While not as enthusiastic about deficit reduction as the European Commission would like, Rajoy has not used recent economic growth to abandon austerity, but merely to soften it slightly.

The collapse in revenue-raising capacity created by the crisis is not being reversed. The higher revenue from growth is overwhemingly going to pay off debt and finance vote-buying tax cuts.

By contrast, the main pillar of the United We Can economic strategy is to keep public spending at 2015 levels (at 43.3% of GDP). This stands in contrast to the European Commission's demand to cut spending over the next four years by 3.2% of GDP.

This would allow for increased spending on social welfare, education, health, housing, community services, culture and leisure. It would come along with a cut in the percentage of the budget going to defence, public order and security.

These changes would allow for: spending on health and education to recover their 2009 weight in total spending (reversing cuts of up to 20% in their budgets); the introduction of a guaranteed minimum income (starting at €600 a month for an individual); the return of the pension age to 65 and a raise in the pension (to 100% of the minimum wage for a pensioner without a dependent spouse); greater funding of care services; and a boost to public investment “centred on financing the energy transition”.

Other anti-poverty measures would include: “a living minimum electricity supply at a rate based on income”; a rent ceiling of 30% of household income; and measures to improve the lives of women, including protection of their employment during and after maternity as well as a “jobs plan for women over 45 and women at risk of social exclusion”.

Under the plan, this increased spending would not see the deficit expand proportionately. Over the same period, tax income — now 8% of GDP — would be boosted by an attack on tax evasion, higher taxes on of the rich and new green taxes. A “solidarity” tax would also be placed on the finance sector, which has received more than €61 billion in direct public support since 2009.

Total tax revenue would rise by 2.5% of GDP by 2019. This would leave a 2.3% deficit instead of the zero deficit demanded by the European Commission — and agreed to by Rajoy in a letter to Brussels recently leaked to Spanish media.

The second main pillar of the strategy is a complete reworking of the Spanish state's labour relations, chiefly the work of the 2010 (PSOE) and 2012 (PP) workplace relations legislation.

United We Can's plan would repeal both laws and replace them with “a new Workers' Statute with the goals of (1) reducing casualisation (2) rebalancing conditions for collective bargaining (3) promoting workers' participation in enterprise management, and (4) eliminating gender-based discrimination”.

The minimum wage would be raised from €9172.80 a year to €12,600 by the end of 2019.

The third main pillar would be the creation of a public bank. This would start by keeping “rescued” private banks Bankia and Banco Mare Nostrum in public hands. A public bank would drive the creation of an economic model less dependent on tourism and real estate — and able to finance ecological conversion, increased research and development, and new industries.


Others things being equal, the plan would lead to a modest but clear improvement in the lives of millions of people in the Spanish state, where nearly 5.9 million live below the poverty line. It would also start to attack the most critical areas of ongoing social injustice and environmental devastation.

But what obstacles stand in its way?

We can discount those that only exist in the overheated imaginations of commentators aligned to the economic establishment. For example, the May 18 report of leading economic daily Expansion sought to spook its readers with huge-sounding numbers on spending and tax increases. But it made no attempt to objectively assess their overall economic impact.

Expansion reported: “The proposal envisages that in 2019 public spending will climb to 43.3% of GDP, at least €32 billion above the 40.1% that the government projects in the Stability Program that has been sent to Brussels.

“The goal of United We Can is, by the end of the parliamentary term, to have spent €11 billion more than the PP on health, €8 billion more on education, €11 billion more on social protection, €3 billion more on the environment, €2 billion more on housing and services and €3 billion more on culture.”

Over the same period the tax take “will rise by more than €30 billion”.

So what? Not only will these figures only roughly restore the cuts to spending since 2008, they amount to much less than the increase in public spending under the 2000-2004 PP government (€87 billion) and the 2004-2008 PSOE government (€126 billion).

Podemos economics secretary Nacho Alvarez explained: “Although our proposal involves a significant increase in public expenditure, it would be perfectly viable in financial terms.

“Firstly, through increased revenue stemming from fiscal reform and the fight against fraud. Secondly, because economic growth itself would translate into higher public revenue … Finally, some fiscal space could be gained from postponing the goal of reducing the public deficit…

“The choice, then, lies between prioritising either the rate at which unemployment is reduced or at which the public deficit is reduced.”

Political threat

What, then, is the problem with this practical proposal that has been dubbed as “mad” and “destructive”? Maybe the higher public spending proposed would lead to an increased balance of payments deficit as imports increase more than exports?

According to Alvarez, this would probably happen, but to a controllable extent. It would not reach the peak of the Spanish real estate bubble in 2007, when the Spanish external deficit reached -9.6% of GDP.

Maybe a Spanish fiscal expansion would spur inflation? With Eurozone inflation at -0.1% in May, no sign of price pressures visible anywhere on the horizon, and the European Central Bank doing all it can to counter deflation, that concern seems misplaced, to say the least.

Surely, then, it is because the United We Can plan would mean violating the European Union's fiscal rules? That is certainly true — indeed Spain has been in violation of these rules ever since the recession began.

However, over the years, the European Commission has surrounded these rules with an increasing maze of exceptions and provisos. An example in recent years is the European Union's Excessive Deficit Procedure targets have already been rescheduled three times for Spain as well as once each for France and Italy.

No, the real obstacles the United We Can economic plan faces are not economic at all, but political.

With no end to low growth visible in the Eurozone and conflict rising between the ECB and the German financial institutions over how to respond, the last thing the squabbling European institutions need is a United We Can victory. Such a win would be a loud “No” to austerity —and that in a country that will be a lot harder to blackmail into submission than isolated and bankrupt Greece.

[Dick Nichols is Green Left Weekly's European correspondent. A fuller analysis of the United We Can economic plan will soon appear at Links International Journal of Socialist Renewal.]

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