Coronavirus in Spain: time to revamp the Moncloa Pacts – Elcano Blog

Pavilion of the Council of Ministers at the the Moncloa Palace. Photo: Yeray Díaz Zbida from Melilla, España (Wikimedia Commons / CC BY 2.0). Elcano Blog

Pavilion of the Council of Ministers at the the Moncloa Palace. Photo: Yeray Díaz Zbida from Melilla, España (Wikimedia Commons / CC BY 2.0)

In times of profound crisis, countries can pull together and revive morale by political parties burying their differences and agreeing a set of measures and implementing them with or without a coalition government. This was the case, for example, of the UK during World War Two when a Conservative government led by Winston Churchill also included leaders from the Liberal and Labour parties.

Prime Minister Pedro Sánchez is mooting the idea of Moncloa-style Pacts, the economic agreement between political parties, employers and trade unions in 1977, in the heady post-Franco years as the country moved nervously toward democracy against a backdrop of stagflation.

The 15-year period of strong economic growth during which real GDP increased by close to 7% a year came to an end after the oil price shock of 1973–1974. The higher prices were particularly damaging for Spain because of its heavy reliance on imported energy, which supplied over two-thirds of its requirements. The economy grew by only one 1% in 1975, the year that General Franco died.  Inflation rose from 17.4% in 1974 to 24.5% in 1977, fuelled by a wage rise that had run ahead of the increase in consumer prices for several years. The current account, after years of being in surplus, went into deficit as earnings from tourism and remittances from workers abroad stopped offsetting the trade deficit. The number of unemployed more than doubled between 1973 and 1977 to 832,000 (6.3% of the labour force). The rise in the jobless rate was also pushed up by the return of emigrants who had lost their jobs.

The pacts, which did not involve a coalition government, were an attempt to repeat in the economic field what had been achieved successfully through consensus in the political sphere. The mounting economic crisis was viewed across most of the political spectrum as the common enemy that threatened to blow the march to democracy off course. By putting the country before political parties’ competing interests, the pacts got the economy back on track until other problems appeared in the 1980s, and they paved the way for the 1978 Constitution drawn up by all parties.

The left, which controlled the two main trade unions, agreed to limit wage increases to no more than the expected rate of inflation (previously raises were based on past inflation) in return for various measures, including better unemployment benefits and pensions; improvements in education, the health service, and housing programmes. Other agreements included the creation of a modern tax system.

Spain today bears no resemblance whatsoever to the country 43 years ago. Democracy is consolidated, but the country went into the COVID-19 crisis with weak macroeconomic fundamentals: growth had already slowed down, the jobless rate was at 14% (double the EU average), public debt was close to 100% of GDP and the fiscal deficit remained stubbornly high (2.6% of GDP). It took Spain a decade to get the deficit to below 3%, the EU’s threshold which has now been discarded. The economy could shrink by up to 15% this year, debt is forecast to reach 120%, the deficit 10% and unemployment will soar. The only bright spot, in contrast to 1977, is the collapse of oil prices and the significant use of renewable energy. Banks are also in a healthier condition, as a result of the measures taken to strengthen their balance sheets after the 2008 global financial crisis, and inflation is low.

Once the lockdown is over and there is a return to some kind of normalcy, pacts to reconstruct the economy, heavily dependent on tourism (83 million visitors in 2019), brought to a standstill by COVID-19, make sense. Among European countries, the Spanish economy is set to suffer the most. The problem is that politics in Spain, long before the health crisis, became infected by the virus of fragmentation (16 parties are represented in parliament), polarization and rancor. Consensus, the watchword during the transition to democracy, is no longer part of politicians’ vocabulary.

The fragile coalition of the Socialists and the more radical Unidas Podemos (UP) since January (after four inconclusive elections in as many years) is the first one in Spain since the Republic in the 1930s, and a minority one. It depends for its survival, explicit or tacit, on parliamentary support from eight other parties including pro-independence Catalan and Basque MPs.

Even before political life became very fragmented as of 2015, the Socialists and the Popular Parties, which have alternated in government since 1982, woefully failed to find common ground in matters of state. This is exemplified in the field of education, a key and weak area, where there have been eight reforms in the last 40 years, including this government’s draft law in February, which are then usually overturned by the following administration, to the despair of parents. One of the most conflictive points is the importance given to religion classes, as if this was the most serious problem facing a country with very high rates of early school-leaving and of repeating courses.

The three parties on the right –the Popular Party (PP), the far-right VOX and Ciudadanos (Cs)– have given the government a rough ride from its start and have wasted no opportunity in sniping at it during the COVID-19 crisis. Pablo Casado, the PP’s leader, has called Sánchez handling of the epidemic ‘an explosive cocktail of arrogance, incompetence and lies.’ VOX’s leader, Santiago Abascal, accused Sánchez of ‘criminal management’ of the epidemic and called for a government of national emergency. He refused to back extending the lockdown until 25 April, despite the more than 166,000 confirmed cases and 17,000 recorded deaths and no consolidated flattening of the curve.

Casado has rejected pacts without even discussing them with Sánchez, calling the idea a ‘distraction’ to keep the left in power. Inés Arrimadas, Cs’ leader, however, is in favour as, among other things, it would dilute the influence of Unidas Podemos in the government and moderate the response to the economic emergency. UP has called for sweeping nationalizations and a basic income.

Casado’s difficult job of leading the opposition (the PP has 88 of the 350 seats in Congress) in a time of national crisis is compounded by the populist VOX, which only entered parliament in April 2019 and more than doubled its seats to 52 in the November 2019 election. He needs, on the one hand, to restore the party’s fortunes and return it to government by carving out a credible position, but, on the other hand, using the crisis to gain partisan advantage risks alienating the PP for being unpatriotic.

The Moncloa Pacts proved to be the right approach. More than 90% of Spaniards are in favour of a new national accord, according to polling firm Metroscopia. Spaniards were fed up political bickering long before coronavirus hit the country hard, and they want it to end when the epidemic is over.

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