Spain’s socialist government lost on Friday (27 July) a key vote on the revised fiscal path to balance the public accounts, as Pedro Sánchez’s allies abstained calling into question the survival of his fragile minority.
The fiscal path is needed in order to establish the expenditure ceiling, and subsequently to prepare the draft budget that the government has to submit to Brussels by 15 October.
Sánchez, who controls only 84 seats in the 350-seat parliament, cannot pass the budget without those parties that brought him to power in June, when they backed a no-confidence motion against his conservative predecessor, Mariano Rajoy.
He needed the votes of leftwing group Unidos Podemos and the Catalan nationalist parties (ERC and PDeCAT) to overcome the opposition of Partido Popular (PP) and liberal party Ciudadanos.
The government will try to pass the fiscal path again in one month.
If Sánchez fails to pass his budget plan for the eurozone’s fourth-largest economy, the future of his fragile, two-month-old administration could come into question.
The new fiscal path is also needed in order to meet the EU’s fiscal targets. Spain is on track of exiting the EU’s excessive deficit procedure in 2019, after bringing down the deficit below the 3% of GDP threshold this year.
Spain will be the last EU economy to exit the EU’s ‘red zone’ in terms of budgetary balance.
The government’s rejected proposal revised upwards the deficit targets requested by Brussels by 0.5% this year and the next, to 2.7% and 1.8% of GDP, respectively.
Accordingly, the expenditure ceiling for next year was €125 billion, an increase of 4.4% compared to this year.
Approval of the new targets was crucial as they also included the structural fiscal effort Spain has to do to balance its public accounts, the key demand for the European Commission once Madrid is below the mandatory 3% limit.
The Government proposed an adjustment of 0.4% of GDP, slightly inferior to the EU executive’s 0.65% but still within the flexibility allowed by EU rules.
The government met with a few of the seven parties that backs it in parliament for several hours on Thursday at the prime minister’s office but the positions were too far away for a deal to be reached, sources briefed on the talks told Reuters.
One disagreement related to the socialists’ resistance to opening an inquiry into media reports of offshore business dealings by the former king, Juan Carlos, four sources said.
Podemos also pushed for softer deficit targets and higher spending in the budget, which the government opposed.
Sánchez had acknowledged late on Thursday he could lose the vote, though he would stick to his position of not bringing forward the next national election, which is due in mid-2020.
“Those of the groups that vote against the deficit path will be voting against repairing the welfare state, improving public health and making progress in education,” Sanchez told a joint news conference with French President Emmanuel Macron.
“I call on all of them to act in a responsible way,” he said.