MADRID May 8 After a year of radical reforms
that made Spain more competitive but also exacerbated a deep
recession, Prime Minister Mariano Rajoy has largely lost his
appetite for aggressive and unpopular cuts to pensions or state
His plunging approval rating at home is holding him back as
unemployment soars to 27 percent. Sources within the government
say he has also reached the view that deeper reforms at home
will win him few points in negotiations with European partners.
Rajoy, of the centre-right People's Party, is under less
pressure than last year after Brussels gave him more time to
plug a budget gap. Borrowing costs have dropped to 2-1/2-year
lows thanks to a European Central Bank pledge to backstop
struggling euro zone countries and to cash from investors flush
after an increase in global money supply.
He defended his policies before Parliament on Wednesday,
saying he had chased off the spectre of an international rescue
for Spain and that he would continue making tough reforms to
modernize the economy.
But he did not discuss details. Critics say the new reform
package his cabinet agreed on two weeks ago puts off tough
decisions on pensions and the cutting of public administration.
"No one made a greater effort than Spaniards in 2012," Rajoy
told lawmakers, hinting that other countries in Europe need to
match his effort on cutting costs.
Through tax hikes and spending cuts last year Rajoy cut more
than 20 billion euros from the public deficit. An overhaul of
Spain's labour market rules reduced the power of labour unions
and cut the cost of hiring and firing.
Spain also cleaned up its wobbly financial system with 42
billion euros in aid money from Europe, although the cost of
that rescue may still rise.
But this year his reforms are mostly a rehash of ideas that
he had already put forward last year and which economists say
they will do little to revitalise economic growth.
One urgent reform is to the pension system. Only 16 million
Spaniards currently contribute to the pension fund, which
supports 9 million people. And, as in many developed countries,
Spain's population is aging.
Rajoy is negotiating a new formula for calculating pension
payoffs, which he can sell at home as a gradual tweaking of the
system and in Brussels as something that will be more impactful
in the long-run.
Analysts say he is wary of going further for fear of
sparking more intense street protests. Demonstrations against
cost cuts have been frequent in Spain over the past two years,
although they have mostly been peaceful.
The latest opinion polls show the PP has lost 10 percentage
points of support since Rajoy's election in November 2011.
Support for the main opposition group, the Socialists remains
unchanged, while backing has been growing for smaller, more
More than 68 percent of Spaniards say the government is
doing a bad or very bad job, while the latest official forecast
shows that a quarter of the workforce will still be out of work
three years from now.
FOCUS ON EUROPE
While his focus on new domestic reforms flags, Rajoy has
turned towards Brussels to demand more action from the EU. He
has repeatedly pressed Brussels and its paymasters in Berlin to
move more quickly on Europe-wide reforms, saying that austerity
in individual countries will be worthless without wider efforts.
He wants speedier implementation of a single euro zone
banking supervisor and deposit guarantee fund, which would help
Spain by spreading financial system risk across the bloc.
Rajoy has also called on the European Central Bank and the
European Investment Bank to take action to help small businesses
obtain funding: smaller Spanish companies must pay much higher
interest rates on loans than, for example, German counterparts.
But slowing down reforms at home could cost him the leverage
that he needs to make his case for stronger action in Europe.
Jose M. Areilza, a law professor at Spain's ESADE business
school, said Rajoy has a limited window of opportunity to make
changes at home and to push for change in Europe ahead of
European parliamentary elections next year.
"Spain needs to push for things now. After the European
parliamentary elections the mandate will not be for more Europe,
it will be the other way around. There will be less European
solidarity," Areilza said.
The PP has an absolute majority in Congress and some party
members - most prominently outspoken free-market advocate
Esperanza Aguirre, ex-president of the Madrid region - are
pushing for Rajoy to move faster to cut public institutions.
While cutting flab out of the bureaucracy could be a popular
measure - as opposed to fresh cuts to education and health
spending - the potential rise in unemployment would not be.
In Parliament on Wednesday Rajoy said he has eliminated
370,000 public jobs. Spain's spending on public administration
is already lower than the European Union average.
However, those seeking more cuts argue that there is still
room to scale back. Many of Spain's autonomous regions have
offices that duplicate efforts by the central government. For
example there are multiple anti-monopoly watchdogs.
Within his cabinet, Rajoy's economic advisers are divided on
the issue, and the notoriously cautious prime minister says he
is waiting for the results of a study, due in June.
"On the one side you have people saying we should take
advantage of the crisis to reform, no matter what the political
cost. But the more political members of the government say it
doesn't make sense to carry out unpopular reforms if you aren't
going to be in power," said Jose Ignacio Torreblanca, head of
the Madrid office of the European Council on Foreign Relations