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THE EURO ZONE

Risk v. reward

Does anyone care about growth forecasts pertaining to the Spanish economy? There was reason to ask that question once again this week, because the Bank of Spain has lowered its prediction for Spain's GDP expansion in 2018, from 2.7% to 2.6%. Although presumably of importance to some academic economists, this statistic will make zero difference to most Spaniards. What is interesting, though, is the reasoning behind the bank's slightly-increased pessimism.

Justifying its lowered expectations, the Bank of Spain cited (amongst other factors) the unstable nature of Spain's Socialist government. The PSOE, led by Pedro Sánchez, holds only 84 seats in the 350-seat parliament - a minority status that's already proved a barrier to passing new legislation. There are indications, though, that Sánchez could bolster his hold on power if he risked holding early elections.

The most recent opinion poll - carried out between the 1st and 11th of September by Spain's Sociological Research Centre - showed that, if an election were held today, the PSOE would win with 30.6% of the vote. Pablo Casado's flailing Popular Party (PP) came in a far-removed second, with just 20.8% of the national vote.

But it's highly unlikely that Sánchez is going to capitalise on this by holding elections before his term expires in 2020. The PSOE leader is too attached to his unelected position as Spanish prime minister, even if risking an early vote might strengthen his position in congress.

Note that the government's popularity has increased even though it's suffered two scandals since taking office four months ago. The first occurred just a week after Sánchez became prime minister and involved newly sworn-in culture minister Maxim Huerta, who resigned amidst allegations that he didn't pay taxes when working as a journalist ten years ago.

Huerta's hasty departure was followed by health minister Carmen Montón's resignation earlier this month. Montón, it transpired, obtained a master's degree from Madrid's Juan Carlos University under questionable circumstances. Said university is clearly a favourite among Spanish politicians: PP leader Casado is also suspected to have received a qualification from this relaxed institution, although he allegedly did no work to earn it.

And yet the PSOE is riding high in the opinion polls. Clearly, the party's core voters are so used to corruption in Spanish politics that they simply don't notice it anymore. We're also led to the conclusion that Sánchez's more flashy policies - exhuming Franco's remains from their state-funded mausoleum, increasing taxes on businesses and wealthy individuals - are going down extremely well.

Popular as some of his ideas might be, Sánchez is going to have a tough time enacting them with such a small parliamentary majority. There's a possible solution to that problem, but the risk attached is too much for a prime minister enjoying a prolonged honeymoon period.