Mark Nayler

Spain’s political freeze starts to bite

Spain's political freeze starts to bite
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The circus of Spanish politics shows no signs of stopping. For now, the country is managing to weather this eight month-long deadlock surprisingly well: Spain’s GDP growth has continued at one of the fastest rates in the eurozone. But this is in spite, rather than because, of Spain's zombie government. A record-breaking tourist season has helped, as has a jump in consumer spending. Yet finally, the cracks are beginning to show; and the impasse crippling Spanish politics - which now looks set to lead to the increasingly-likely prospect of a third election on Christmas Day this year - is starting to take its toll.

So what's the hold up? If you're looking for who to blame, you needn't look beyond acting conservative prime minister Mariano Rajoy and socialist leader Pedro Sanchez, who are emerging as the main obstacles to ending Spain’s political freeze. Dithering Rajoy has refused to step down over deep-set corruption that has put his entire party under investigation. There was some hope that a pact between new centrist party Ciudadanos (‘Citizens’) and the Popular Party (PP), that would have jointly secured the two parties 169 seats in the 350-seat parliament, was the answer to this deadlock. But that optimism looked to be short-lived after Sanchez’s PSOE blocked the deal. Offering no alternative in its place means Sanchez is partly hindering the formation of a new Spanish government, which needs to act quickly to stop the rot setting in.

It's clear this deadlock can't continue for much longer: Rajoy’s temporary administration hasn't approved a single new infrastructure project since last December’s divisive vote - causing spending on public work contracts to crash by a fifth in the first half of this year. Given that such projects provide much-needed employment opportunities - and also attract investment into Spain - it'll be only a matter of time before their absence begins to bite. Other companies also appear to be getting jitters about the lack of a functioning government. Manufacturers’ investment in machinery and equipment, for example, grew at an impressive 11 per cent in the last quarter of 2015; in the second quarter of this year, that slumped to just 7.8 per cent.

You might say that these figures, set alongside Spain’s impressive GDP growth, look insignificant. But they tell us that in the worlds of business and infrastructure development - both crucial to the continuation of Spain’s fragile economic recovery - patience with the country’s political deadlock is wearing thin. The EU is also awaiting the country’s 2017 budget, which must be delivered next month, yet the acting administration is unable to formulate new economic policy.

What's worse is that the two politicians causing this deadlock don't seem to care. The PM and Sanchez are treating the matter without any urgency at all and seem unfazed about dragging their heels, with both men taking holidays this summer. In an ideal world, the solution to this looming crisis would be simple: Sanchez would have refrained, in the interests of Spaniards, from voting against the Ciudadanos-PP pact; and Rajoy would stand down. Yet at the moment, Spain provides almost daily reminders of the fact that politics is never conducted in an ideal world.

It is still possible for Sanchez and Rajoy to simplify the process of forming a new government and, in doing so, guarantee that Spain’s economic recovery is not hampered. Not blocking viable coalition deals and Rajoy's resignation as party leader would be a start. As it is, their prolonged standoff is making Spain the worst of all possible worlds in which to negotiate and may jeopardise the country’s economy. At the moment, the contagion is limited. But it seems a matter of time before all Spaniards pay the price for this unfortunate - and avoidable - political deadlock.