Austerity, indignados, and the rise of third parties

The Rajoy administration

A pair of earthquakes (the stronger of which was magnitude 5.1) that struck Lorca in southeastern Spain in May 2011 compounded the country’s economic woes. At least 10 people were killed, and the city suffered extensive damage as a result of the deadliest earthquake to strike Spain in more than half a century. Later that month the PSOE suffered crushing losses in local elections as organized protests swept Spanish cities. Dubbed the indignados (“angry ones”) by the media, the protesters were predominantly young people who were dissatisfied with the pace of economic and political reform. With the unemployment rate still topping 20 percent (more than 40 percent for job seekers under age 25) and the Spanish bond market ailing, Zapatero, who had already announced that he would not seek reelection, advanced the date of the next general election from March 2012 to November 2011. In the election on November 20, 2011, the PP swept the PSOE from power in convincing fashion, winning an overall majority of 186 seats in the 350-seat parliament. Zapatero remained prime minister of a caretaker administration, while PP leader Mariano Rajoy began the work of constructing a new government. Financial markets failed to respond to the results, however, and Spain’s 10-year bond yield remained ominously close to the 7 percent threshold that had triggered bailouts for other countries embroiled in the euro-zone debt crisis. Rajoy was sworn in as prime minister on December 21, 2011, and he reaffirmed his commitment to cut spending and reduce Spain’s deficit.

Throughout early 2012 credit agencies cut the Spanish debt rating numerous times, but markets seemed to respond positively to the adoption of a new EU fiscal discipline pact in March of that year. The return on Spanish 10-year bonds receded to 5 percent that month, but the respite was short-lived, as a power struggle erupted between Rajoy and EU ministers over the deficit target of Spain’s 2012 budget. Labour unions organized a general strike on March 29, paralyzing transportation systems across the country as hundreds of thousands of demonstrators took to the streets in Barcelona and Madrid to protest the Rajoy government’s austerity program.

The budget that Rajoy ultimately unveiled was characterized by his finance minister as the most austere since the reintroduction of democracy. It featured an array of public-sector wage freezes, cuts in social programs, and tax hikes, all aimed at Rajoy’s ultimate goal of reducing government spending by €27 billion (about $36 billion). As 10-year Spanish bond yields continued to creep upward in April 2012, Rajoy introduced an additional €10 billion (about $13 billion) in budget cuts. The Spanish economy continued to struggle in spite of those measures, as regional governments faced unsustainable debt loads, and Bankia, Spain’s largest mortgage lender, was nationalized. Rajoy’s government spent billions to prop up Spain’s ailing banks, and in June 2012 the finance ministers of the euro zone authorized a bailout of €100 billion (more than $125 billion) to recapitalize the Spanish banking sector.

One condition of that bailout was the creation of a “bad bank”—a financial institution whose sole purpose would be to take on toxic assets from other banks in an effort to restore those banks to solvency. The Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria (SAREB) became operational in November 2012 with the stated mission of managing and disposing of up to €90 billion (about $120 billion) of nonperforming real-estate loans over a period of 15 years. In the months following SAREB’s creation, Spain’s nationalized and partially nationalized banks transferred bad loans that were valued at over €50 billion (about $65 billion) to SAREB. The financial markets responded positively, and the yield on 10-year Spanish bonds, which had reached a perilous 7.5 percent in July 2012, declined to a sustainable 5 percent in January 2013.

Economic recovery and Catalonian independence

The continued implementation of austerity measures triggered resentment from the Spanish public, and this was manifested in protests, general strikes, and declining electoral support for the political establishment. Pro-independence parties triumphed in elections in the Basque Country and Catalonia in late 2012, and leaders in both regions vowed to hold referenda on independence from Spain. As secession was prohibited by the 1978 constitution, any action on the proposed referenda would bring the regions into direct conflict with Madrid.

Although the economy showed signs of stabilizing in 2013, few of these gains trickled down to the general public. Unemployment remained above 25 percent, wages sagged, and household savings plummeted. Despite the hardship imposed by the ongoing austerity program, Spain fell short of its EU-mandated budget deficit target by a sizable amount. European Commission analysts predicted that the deficit goals would be unattainable prior to 2016 unless additional austerity measures were implemented.

It was against this backdrop that the Spanish monarchy, long a symbol of stability in the country, came under increased scrutiny. King Juan Carlos, who had been criticized for embarking on a lavish elephant hunt in Botswana in 2012, saw his family subjected to investigation for numerous alleged financial crimes. The king’s son-in-law, Iñaki Urdangarin, was accused of siphoning $8 million from a nonprofit organization, and in 2013 Spanish authorities seized his Barcelona mansion in lieu of bond. Princess Cristina, Juan Carlos’s daughter, was also identified as a suspect in the case, and in February 2014 she was called to testify before a Spanish court. With his personal approval rating suffering, the 76-year-old Juan Carlos announced in June 2014 his intention to abdicate in favour of his son, Felipe. With the approval of the Spanish legislature, Juan Carlos carried through on that plan on June 18, and the following day the crown prince became King Felipe VI.

A number of political observers linked the change reflected in Juan Carlos’s abdication with the results of the election for the European Parliament held on May 25, 2014. For the first time since Spain’s return to democracy in 1975, the PP and PSOE failed to take a combined 50 percent of the vote, with the PP down from 42 percent of the vote in 2010 to 26 percent and the PSOE down from 39 percent to 23 percent. The real winner in the election was the new radical political movement Podemos (“We Can”), which gained support and energized opponents of politics as usual. Founded in January 2014 and led by the youthful, charismatic Pablo Iglesias Turrión, Podemos ran on an anti-austerity platform while presenting itself as a movement of neither the left nor the right but one that was opposed to the corrupt and self-serving political and economic elites.

In Catalonia the region’s nationalist authorities defied the central government and the Constitutional Court by holding an unofficial referendum on independence on November 9, 2014. Some 81 percent of those who voted supported independence, but the turnout was under 40 percent of eligible voters. Nonetheless, exactly one year later the regional parliament narrowly approved a measure to implement a “peaceful disconnection from the Spanish state.” Rajoy responded to the move by making an immediate appeal to the Spanish Constitutional Court. Earlier, in September, in regional parliamentary elections in Catalonia, pro-independence parties had won 62 seats and were able to form a coalition government.

By 2015 the Spanish economy not only was showing signs of life but also had become one of the fastest-growing economies in Europe, although unemployment remained high at 21 percent. Despite the improving economy, when it came time to vote in elections for the national parliament in December 2015, many Spaniards continued to turn their backs on the establishment parties. Although the PP again finished first, it fell to 123 seats and lost its legislative majority. The PSOE again came in second but dropped from 110 seats in 2011 to 90 seats. Podemos again looked like the big winner, as it captured 69 seats. Another surging third party—the centre-right Ciudadanos (Citizens), which opposed the Catalan separatist movement—took 40 seats. Weeks of inconclusive political wrangling followed, and the Congress of Deputies reconvened on January 13, 2016, without a new government in place. King Felipe invited Rajoy to attempt to form a coalition, but, knowing that he lacked the necessary support, Rajoy declined. The deadlock continued for six months, and, with no party able to craft a government, new elections were scheduled for June 26, 2016.

In Catalonia the independence movement received an enormous boost in the wake of the June 23, 2016, “Brexit” vote in the United Kingdom, and for the first time opinion polls showed that a majority of Catalans favoured a split from Spain. The June 2016 Spanish general election largely mirrored the December 2015 results, with the PP finishing first but falling well short of a parliamentary majority. Spain would ultimately spend most of 2016 without an elected government, and it narrowly headed off its third election in just over a year (slated for Christmas Day) when Rajoy was able to cobble together a minority government in November. The Socialists opted to abstain from a vote of confidence, and, despite vehement objections from the Podemos party, Rajoy was reelected.

Rajoy’s government was unable to contain the Catalonian drive for independence, and a new referendum was held on October 1, 2017. Spanish police confiscated ballot papers and engaged in violent clashes with voters, leaving hundreds injured. Although widespread irregularities marred the polling, the Catalan parliament interpreted the result as a mandate to declare independence from Spain, and it voted to do so on October 27. Within minutes of the declaration, Rajoy invoked Article 155 of the Spanish constitution, stripping the Catalan parliament of power and imposing direct rule from Madrid. Rajoy’s response to the crisis in Catalonia boosted his popularity among the Spanish electorate, but an ongoing scandal within the ruling PP threatened his prime ministership.

By May 2018 more than two dozen people had been convicted on bribery and money-laundering charges in connection with a secret PP slush fund that had operated from 1999 to 2005. Although Rajoy was not directly tied to the corruption charges, PSOE leader Pedro Sánchez, with the support of Catalan and Basque nationalist parties, challenged his government. On June 1, 2018, Sánchez ousted Rajoy after a motion of no confidence was narrowly approved by the Spanish parliament. Rajoy was the first Spanish leader since the restoration of democracy to be removed in this manner. Within days, Sánchez was sworn in as prime minister, despite the fact that the PSOE commanded fewer than one-fourth of the seats in the parliament.