Six ways in which Sunday’s Galician and Basque elections will affect the Rajoy government

Just over 10% of Spain’s population will vote in regional elections this weekend in two key regions, Galicia and Euskadi (the Basque Country), but the elections will play a role in shaping the national politics that affect the remaining 90% of Spain at what’s an especially precarious time for the government of center-right prime minister Mariano Rajoy (pictured above with Galician president Alberto Núñez Feijóo).

Although Rajoy’s Partido Popular (PP, People’s Party) only recently came to power in November 2011, after the eight-year government of prime minister José Luis Rodríguez Zapatero and the center-left Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party), Rajoy has faced an unenviably difficult climate.  Spain’s economy is contracting this year after two years of tepid growth under 1%, which followed a contraction in 2008-09.  Unemployment is now just over 25%, among the highest in the eurozone.

Despite the tough economic conditions, Zapatero’s government, and now Rajoy’s government, have been relentless in slashing the Spanish budget.  Although Spain ran a fairly tight fiscal policy throughout the 2000s, the drop in tax revenue has resulted in an exploding budget deficit, which Rajoy hopes to reduce to just 6.3% of GDP this year (and 4.5% next year and 3% in 2014), in order to prevent yields on Spanish debt from rising to dangerous levels.

In less than a year, Rajoy has passed at least four different budget cut packages, including a raise in the Spanish income tax rate, a 3% hike in the Spanish value-added tax from 18% to 21%, the elimination of tax breaks for home owners and spending cuts for education and health care.  Furthermore, each of Spain’s regions are responsible for cutting their own budgets to just 1.5% of GDP.

Although Rajoy campaigned on a promise not to seek any bailouts from the European Union, like Greece has done, everyone in the EU believes it’s only a matter of time before Rajoy requests one — the European Central Bank has already provided emergency funding to prop up Bankia and other beleaguered Spanish banks in June.  Unlike with Greece, however, the most likely path for a Spanish bailout would be through a temporary credit line through the European Stability Mechanism, triggering the purchase of Spanish debt by the European Central Bank.

So on Sunday, when election results roll in from Galicia and Euskadi, here are six items to consider about how the results could affect the Rajoy government and Spain’s national politics:

Rajoy will be dealing with a less friendly nationalist Basque government.  If the elections in Euskadi go as expected, the top two winners on Sunday will be two nationalist groups — the more traditionally centrist Partido Nacionalista Vasco (the Basque Nationalist Party or the EAJ-PNV — in Basque, the Euzko Alderdi Jeltzalea) and the more radical leftist coalition of ezker abertzalea (‘patriotic left’) groups known as the Euskal Herria Bildu (EHB).  It is also expected that the two groups will likely form a nationalist coalition government — the Basque Nationalists controlled the Basque regional government from 1980 to 2009, but it would be the first time that more radical abertzale would be participating in government, as it’s the first time since last year’s ceasefire with the ETA (Euskadi Ta Askatasuna) that abertzale have competed as part of the political mainstream.  While Laura Mintegi, a professor and author who is leading the abertzale coalition, has taken a conciliatory, if pro-independence tone, Rajoy will nonetheless find himself facing a much more anti-austerity and indepedently-minded Basque government, which could invariably add more pressure on Spain’s wrought regional relations.

A loss in Rajoy’s home region of Galicia would be a major embarrassment.  Although the Partido Popular de Galicia (PPdeG, the People’s Party of Galicia) is by far the strongest party in Galicia, there’s some chance that it won’t win an absolute majority in the Galician parliament — 38 out of 75 seats.  If it doesn’t, the Partido Socialista Obrero Español (PSOE, Spanish Socialist Workers’ Party), the nationalist Bloque Nacionalista Galego (BNG, the Galician Nationalist Bloc) and the Esquerda Unida-Izquierda Unida (EU-IU, the United Left) could possibly unite as a broad leftist coalition, leaving Feijóo and the PPdeG in opposition.  Something similar happened in 2005, when the PPdeG won just 37 seats.  Galicia is a center-right stronghold and Rajoy’s home region, and Rajoy himself once served in the regional parliament.  If the center-right loses control of Galicia’s government after Sunday, it will be an incredible blow for Rajoy and the People’s Party nationally.

A strong nationalist showing could embolden Catalan nationalists.  If Sunday’s election brings nationalists to power in Euskadi (very likely) or in Galicia (possible), two of Spain’s traditionally more autonomous regions will now have nationalist governments after four years of strongly federalist governments in both regions.  That result seems likely to boost Catalan nationalists, who are already energized in advance of snap elections in Catalunya on November 25.  Although neither Basque nor Galician nationalists have been nearly as populist as Catalan president Artur Mas in their rhetoric on autonomy and independence, their success will undoubtedly provide Mas some additional support in his fight against Madrid.

Increased instability will put more pressure on Rajoy to accept an EU bailout.  To the extent that bondholders believe that Spain is losing control over its regions’ finances — Standard & Poor’s yesterday cut the credit rating of Euskadi and neighboring Navarre to just ‘BBB+’ from ‘A’, for example — it is likely that yields on Spanish debt will rise back to the unsustainable level of over 7%, which will leave Rajoy no option but to seek a EU bailout.  Rajoy is currently resisting pressure to seek a bailout right now, in the hopes that he will have more leverage over the terms of any future bailout.  But if regional problems, further protests throughout Spain or other unrest (such as a general strike among Spain’s major labor unions set for November 14) cause sufficient political upheaval, Rajoy’s position could quickly spiral out of control, leaving him no choice but to take whatever the EU offers him.

A poor result will increase grumbling on Rajoy’s right.  Rajoy’s leadership within the People’s Party may not be entirely secure — if his administration is seen as losing control of the political narrative, conservatives on the far right of the People’s Party may begin to grumble.  Esperanza Aguirre, a star of the People’s Party, former president of Spain’s Senate, and the champion of the more traditionally conservative wing of the party, stepped down last month as the president of the Community of Madrid (Spain’s third-most populous community after Andalucía and Catalunya) after nine years.  It’s unclear why Aguirre did so, but she’s now free to launch a return to federal politics and, potentially, challenge Rajoy for the party’s leadership.

The radical left looks set to continue making gains.  All year long, we’ve seen support on the rise for the radical left — Alexis Tspiras’s SYRIZA coalition of radical leftists in Greece, the success of far-left French presidential candidate Jean-Luc Mélenchon, the rise of Emile Roemer’s Socialist Party throughout much of the Dutch election campaign.  The worry is that as the sovereign debt / eurozone crisis enters its fourth year, both center-left and center-right governments in Europe have been forced to enact unpopular budget-cutting legislation, thereby making far left and far right parties more popular politically.  The same is true in Spain, where the Izquierda Unida (IU, United Left), the socialist left that comprises what remains of the former Communist Party of Spain, won nearly 7% in Spain’s 2011 general election.  Its Galician counterpart looks set to pick up at least a handful of seats in the Galician parliament and up to 10% of the vote on Sunday, according to polls. While its Basque counterpart is set to take between just 2% and 5% (and anywhere from zero to two seats), the United Left will certainly find common cause with the more radical abertzale in their opposition to further budget cuts nationally and regionally.

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