Wednesday marked the second anniversary of Spanish Prime Minister Mariano Rajoy's victory in the country's 2011 general elections -- an event that opened one of the most turbulent periods of recent Spanish history. Since then, unemployment has reached record levels, corruption scandals have eroded popular support for mainstream political parties, Catalan nationalism has surged, public spending has been gutted and troubled banks have needed to be rescued. Recently, however, exports recovered, interest rates on sovereign debt dropped and Spain timidly exited from a long recession.
Upon taking office, Rajoy was quickly forced to embrace a reality facing most politicians: Governments operate within concrete political and economic constraints, and some of his campaign promises would need to be scrapped. The new prime minister had pledged not to raise taxes or use public money to assist banks in distress. These vows evaporated once Madrid implemented substantial spending cuts and tax hikes (most notably, a 3 percent rise in the country's value-added tax) and requested some 41.3 billion euros (roughly $55.5 billion) for the banks. Rajoy's government also froze pensions and cut spending in health care and education, triggering immediate protests. Despite the reforms, Spain still has struggled to reduce its deficit, forcing the European Union to repeatedly soften its fiscal targets for the country.
Rajoy's first two years in office were particularly difficult for the Spanish economy. The country's gross domestic product contracted by 1.6 percent in 2012 and is projected to contract by 1.3 percent this year. Perhaps most alarming has been the deterioration of the labor market. According to Eurostat, unemployment in Spain has risen from 21.7 percent in 2011 to a projected 26.6 percent in 2013, giving the country the second-highest unemployment rate in Europe, surpassed only by Greece. Roughly 700,000 Spaniards have lost their jobs since Rajoy's Popular Party won the 2011 elections, and recent statistics indicate that one in five Spaniards live below the poverty line.
Meanwhile, Rajoy has also been plagued by political problems. His first two years in office were marked by corruption scandals, most notably the "Barcenas affair," in which a former treasurer of the Popular Party was accused of collecting money from Spanish businessmen and making payments to top figures within the party. Corruption scandals are not new to Spaniards, but the economic crisis has doused the public's tolerance of misbehaving leaders, and mistrust of Spain's traditional political elites is growing.
The combination of a pervasive economic crisis and deepening corruption scandals has led to a substantial decrease in support for Spain's two largest parties. According to recent opinion polls, the combined support for the center-right Popular Party and center-left Spanish Socialist Workers' Party is currently around 57 percent (the two parties won roughly 73 percent of the vote in the 2011 elections and 80 percent in 2007). At the same time, support for left-wing parties has been rising. These parties are not necessarily anti-European, but they vehemently oppose austerity measures and have criticized Germany's leadership during the EU crisis. In this context, the next general elections (scheduled for 2015) could mark the end of the supremacy of Spain's two mainstream parties, which have dominated Spanish political life since the country's return to democracy in the late 1970s. Spain's traditional two-party system, which reflects the country's fragile balance of power between conservatives and socialists, could evolve into a more fragmented system in which coalitions involving smaller parties become more frequent.
The economic crisis is also threatening Spain's territorial integrity. In Catalonia, for example, today's fiscal demands have been mixed with centuries-old claims for independence. The autonomous region is one of the wealthiest in Spain, but the Catalan government believes that the territory has not received its proportionate share of Spanish fiscal revenues. The failure of Madrid and Catalonia to agree on a new fiscal system, coupled with worsening economic conditions throughout the country, has reignited Catalonia's historical demand for independence. The territory plans to hold a referendum on independence in late 2014, despite Madrid's objections. The Catalan government will use the vote as leverage in its negotiations with Madrid, and political tensions between the two will escalate in the coming months, even if Catalonia is ultimately unlikely to unilaterally declare independence.
Despite its political and economic troubles, Rajoy's government has some reasons for optimism. On Nov. 20, Spain's Ministry of Economy announced that exports grew by 6.8 percent between January and September, compared to the same period in 2012. In recent years, exports have been one of the few sectors of the Spanish economy to perform relatively well. Madrid's recent labor reforms, along with a drop in domestic consumption, have further reduced Spain's trade deficit since the beginning of the crisis. Most important, the Spanish economy ended a two-year recession in the third quarter of 2013, when gross domestic product grew by a meager 0.1 percent. Moreover, the European Union predicts that the Spanish economy will grow by 0.5 percent in 2014. However, the prospects for sustainable economic growth are seriously limited by tightening credit conditions in the eurozone's periphery, a dynamic that is hurting small and medium-sized companies in Spain and other peripheral states.
Spain is also facing a calmer front in international markets. When Rajoy took office in late 2011, Spanish bond yields were at dangerously high levels, and financial markets and the media were continually speculating about when Spain would join Greece, Ireland and Portugal in requesting a sovereign bailout. In mid-2012, the promise of intervention in sovereign markets by the European Central Bank, coupled with Madrid's request for a relatively small bailout for its banks, helped drive down Spain's borrowing costs. While Madrid remains under EU oversight, Spain's position in financial markets has become considerably more stable these days.
Such bright spots would be particularly significant if Spain's crisis were merely financial. But Madrid's problem is that the crisis is basically one of unemployment. Even if the government can issue debt at tolerable costs and the economy moves in and out of recession in the coming years, joblessness will not return to pre-crisis levels this decade. As a result, Spain will be living with the effects of high unemployment -- ranging from large waves of emigration to permanent threats of social unrest and declining support for mainstream politicians -- for years to come. A large number of Spaniards are living in worse conditions than when the crisis began, and political consequences will be felt for the foreseeable future.
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