The cost of political limbo in Spain

ON THE face of things, eight months without a proper government have not hurt Spain. Between April and June, the economy’s quarterly growth was 0.7%, only marginally less than in the first quarter, and it added 271,400 jobs. Unemployment is down to 20% from a peak of 27% in 2013. That is partly because of the prospect of a booming tourist season, with many visitors flocking there after being scared away from the beaches of Egypt, Tunisia and Turkey. It is a tribute to the maturity of Spain’s institutions that the country has gone about its normal business—which, at this time of year, means going on holiday.

But Spain’s political deadlock, in which a stable two-party system gave way in an election last December to a fragmented parliament, comes with a rising cost. Business confidence is starting to flag, as is the pace of job creation. With the euro zone buffeted by Brexit, Spain’s economy is forecast to slow this winter. To boost productivity and cut long-term unemployment, it needs more reform. There are decisions to be taken, on everything from the budget to Catalan separatism—and it needs a government to take them.

After hauling Spain out of recession and repairing the banking system, the conservative government of Mariano Rajoy eased up on austerity before the election. It cut the fiscal deficit from 9.6% of GDP in 2011 to 5.1% in 2015, but that was above the target of 4.2%. With the deficit this year heading for 4.5% of GDP, Luis de Guindos, the economy minister, has negotiated more leeway from the European Commission. Spain now has until 2018 to meet the commission’s target of bringing the deficit below 3% of GDP, instead of doing so this year. The commission decided not to fine Spain for its laxity.

To renew his grip on the public finances, Mr Rajoy must shed the caretaker status to which he was relegated in December. In a rerun election last month his People’s Party (PP) won 137 of the 350 seats in the Cortes, up by 14 seats from December. The opposition Socialists lost five seats; the left-wing coalition they tried and failed to form earlier this year now looks impossible.

On July 28th Mr Rajoy accepted an invitation from King Felipe to try to form a government. But the process is taking much longer than the prime minister hoped. The constitution requires him to get an absolute majority of 176 seats in the Cortes in a first investiture vote, or merely more votes in favour than against on a second attempt two days later. Mr Rajoy admitted that at present he lacks the necessary support to win.

His main hope lies in quiet talks with Ciudadanos (Citizens), a new liberal party with 32 seats. A possible pact would see Ciudadanos support a PP government for at least two years in return for a modest list of reforms in areas such as tax, pensions and the labour market.

Fairly or not, many Spaniards see their prime minister as personifying a self-serving and, in some cases corrupt, political class. “It’s very difficult for us to enter government with Rajoy, who is the symbol of the Spain we want to change,” says Toni Roldán, a deputy from Ciudadanos. So far his party has merely offered to abstain in the second investiture vote. The Socialists have rejected the prime minister’s call for a grand coalition; they say they would abstain and thus allow Mr Rajoy to govern only if Ciudadanos votes for him, taking him close to an absolute majority.

Talks are likely to drag on through much of August. Officials worry that the delay will make it harder to approve next year’s budget. Spain’s restored democracy has seen minority governments but not coalitions. Felipe González, a former Socialist prime minister, observed that the voters have returned an Italian-style fragmented parliament “but without the Italians to manage it”.

Nevertheless, Mr Rajoy has a trump card. He knows most Spaniards are fed up with their politicians’ failure to reach agreement. Among the leaders of the main parties, he is the only one who could expect to gain seats in a third election. That threat is his best hope of an investiture at the head of a minority government, even if he has to wait a few weeks longer.