Spanish Foreign Policy - Elcano Royal Institute empty_context Copyright (c), 2002-2018 Fundación Real Instituto Elcano Lotus Web Content Management <![CDATA[ The main economic challenges confronting Spain’s next government ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari74-2019-chislett-main-economic-challenges-confronting-spains-next-government 2019-06-24T12:26:29Z

Spain’s next government faces major economic challenges and to overcome them it needs to regain the reformist momentum that used to characterise the country before political uncertainty set in.

]]>
Theme

Spain’s next government faces major economic challenges and to overcome them it needs to regain the reformist momentum that used to characterise the country before political uncertainty set in.

Summary

The economy has rebounded from a long recession, and the focus now needs to be on a series of challenges on the fiscal front, a pensions system that is unsustainable, unemployment that is still very high, productivity that is low and an education system not providing what Spain needs. Resolving these issues will determine the shape of the economy in the future.

Analysis

Background

The fragmentation of the political system, with three general elections in the last three and a half years (the same number as between 2004 and 2015), has weakened Spain’s capacity to carry out economic reforms. The country is still living with the 2018 budget as the previous minority Socialist government of Pedro Sánchez was unable in February to garner enough support in parliament for its 2019 budget, as a result of which a snap election was held in April.

The Socialists were the most voted party in that election, but without an absolute majority. Two months on Spain does not have a new government, although Sánchez is expected to be able to form one in July by the skin of his teeth. Whether that government will last the full term of four years is an open question. What is not in doubt is that Spain needs a stable and lasting government, able to implement structural reforms.

The continued political uncertainty comes at a time the economy is slowing down, as it is past the peak in the cycle of growth that began in 2014, following the extended double-dip recession in 2008-13 (see Figure 1). The pre-crisis GDP level was not restored until 2017.

Figure 1. Main indicators of the Spanish economy, 2014-18
  2014 2015 2016 2017 2018
Gross domestic product (a) 1.4 3.6 3.2 3.0 2.6
Private consumption (a) 1.5 3.0 2.9 2.5 2.3
Government consumption (a) -0.3 2.0 1.0 1.9 2.1
Exports of goods and services (a) 4.3 4.2 5.2 5.2 2.3
Imports of goods and services (a) 6.6 5.4 2.9 5.6 3.5
Contribution of domestic demand to GDP growth (pp) (a) 1.9 3.9 2.4 2.9 2.9
Contribution of net external demand to GDP growth (pp) (a) -0.5 -0.3 0.8 0.1 -0.3
Unemployment rate (b) 24.4 22.1 19.6 17.2 15.3
Unit labour costs (c) -0.2 0.5 -0.6 0.2 0.8
Consumer price index (end of period) (c) -1.0 0.0 1.6 1.1 1.2
General government fiscal balance (d) -6.0 -5.3 -4.5 -3.1 -2.5
Net international investment position (d) -98.8 -89.5 -85.3 -83.5 -77.1
General government gross debt (d) 100.4 99.3 99.0 98.1 97.1
(a) Annual rate of change.
(b) % of labour force.
(c) Rate of change.
(d) % of GDP.
Source: Bank of Spain.

On the surface, Spain looks to be doing quite well. GDP growth will still be more than 2% this year, higher than the Eurozone average (1.2%) for the fifth year in a row, the unemployment rate is down to below 15% from 26.9% in the first quarter of 2013, the current account has been in surplus since that year, partly due to record exports, inflation has remained at below 2% and the country received US$44 billion of direct foreign investment last year, double that in 2017 and the third-highest amount in the EU. Last year Spain, to the surprise of many, was the largest single contributor to Eurozone growth, ahead of Germany, the bloc’s traditional locomotive.

But there are imbalances that threaten the sustainability of growth, and ones that make Spain vulnerable in the event of another global economic crisis. The next government faces challenges on the fiscal front, in the ailing pensions system, an unemployment rate that is still very high, particularly for young adults, productivity that is low and an economic model that is still disproportionately based on tourism and construction, a sector that is regaining dynamism, a decade after the bursting of a spectacular property bubble, but far from the previous boom due to much reduced public works.

The fiscal challenge

The most immediate issue for the next government is to approve a budget for 2019. Spain was finally released in June from the European Commission’s tutelage (the excessive deficit procedure), as last year’s fiscal deficit came in, for the first time in a decade, at below the EU threshold of 3% of GDP (see Figure 2). The deficit peaked at a whopping 11% in 2009 (surplus of 1.9% in 2007, at the height of the boom). Brussels is keeping a watchful eye on the situation.

Figure 2. Spain’s budget balance, 2013-18 (% of GDP)
2013 2014 2015 2016 2017 2018
-7.0 -6.0 -5.3 -4.5 -3.1 -2.5
Source: Bank of Spain.

Initially, Spain was going to cut the deficit to 1.3% of GDP this year and 0.5% in 2020. The Commission forecasts deficits of 2.3% and 2%, respectively. After years of austerity, the pressure to spend more is growing. The previous Socialist government extended the 2018 budget and adopted new spending and revenue measures by royal decree. On the expenditure side, the measures include some additional pension increases and a number of social policy measures. Some measures adopted in the 2018 budget law approved by the previous Popular Party government, such as a pay hike for public sector workers, restoring annual inflation-linked rises in pensions and the tax cut for low-income earners, will have a budgetary impact this year. The capacity for spending more is very limited unless there is a substantial rise in government revenue, due to growth effects and tax increases. Tax cuts are out of the question.

Spain’s government revenue last year accounted for 38.9% of GDP, according to Eurostat, compared with a Eurozone average of 45%, while government spending was 41.3% (45.6% average). Effective tax rates are much lower than nominal ones due to a number of loopholes, but judging by the amounts of unpaid taxes recovered every year, Spain also has a substantial tax fraud and evasion problem. The Tax Agency netted €15 billion last year (see Figure 3). Spain’s tax revenue as a percentage of GDP (33.7%) is well below the EU average of close to 40%, but among the 36 OECD countries it is almost in line with the average (see Figure 4).

Figure 3. Revenue recovered from tax fraud and evasion, 2009-18 (€ billion)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
8.1 10.0 10.5 11.5 10.9 12.3 15.7 14.9 14.8 15.0
Source: Tax Agency.
Figure 4. Tax revenues as % of GDP, 2017 and 2000
  2017 2000
France 46.2 43.4
Germany 37.5 36.2
Italy 42.4 40.6
Spain 33.7 33.2
UK 33.3 32.9
US 27.1 28.2
OECD average 34.2 33.8
Source: OECD Revenue Statistics.

As well as grappling with a fiscal deficit over the past decade, public debt has also soared –from 36.3% of GDP in 2007 to 97% in 2018–. The debt has hardly declined since 2014 when it stood at 100%. Servicing the debt accounts for a significant chunk of spending and its size makes Spain vulnerable to international interest-rate hikes. Excluding the interest paid on the debt, the State ran a small primary surplus last year equivalent to 0.72% of GDP.

An unsustainable pensions system

There is no shortage of warnings from within Spain (Bank of Spain) and outside (IMF and OECD) that the country’s pensions system is headed toward a crisis unless measures are taken in time to restore its sustainability. In essence, a toxic mix of the retirement of the 1960s baby boomers, high and rising life expectancy (one of the highest in the world at 83 years) and one of the world’s lowest fertility rates (1.25) is making pension reform a pressing issue. The number of deaths has outstripped births since 2015, a major demographic change. Last year there were 56,262 more deaths than births, the highest figure on record. Political parties under the so-called Toledo Pact failed earlier this year to agree any measures on pensions after three years of negotiations.

The reforms approved in 2011 and 2013 made some adjustments that countered the impact of ageing on public spending on pensions, but measures included in last year’s budget delayed the application of a sustainability factor and reintroduced the annual inflation-based revaluation of pensions (eliminated as of 2014 when the annual rise was set at 0.25%, well below inflation, unless the system could afford more). The reform to allow for rising life expectancy in calculating pensions was put back from 2019 to 2023.

In the current context of an ailing social security system, restoring the inflation indexation is largely viewed as an irresponsible and populist measure. The decision was taken by the minority Popular Party government in order to secure support from the Basque Nationalist Party (EAJ/PNV) for its 2018 budget. Increasing pensions every year in line with inflation might seem just, but in the context of Spain’s ailing system it adds a significant amount to the pensions bill.

The proportion of the over-66s compared with those aged 16-66 is forecast to double between 2018 and 2050 (see Figure 5). In other words, there will be fewer people of working age to support those who have retired in the pay-as-you-go system. For each person over 66, there will only be two persons aged 16-66. By 2050, Spain will have 15 million pensioners, up from 8.7 million today.

Figure 5.
  1950 1975 2000 2015 2025 2050
France 19.5 24.5 27.3 33.3 40.9 52.3
Germany 16.2 26.5 26.5 34.8 41.4 59.2
Italy 14.3 21.6 29.2 37.8 45.6 72.4
Japan 9.9 12.7 27.3 46.2 54.4

77.8

Poland 9.4 17.1 20.1 24.3 36.4 60.8
Spain 12.8 19.0 26.9 30.6 38.6 77.5
UK 17.9 25.5 27.0 31.0 35.9 48.0
OECD 13.9 19.5 22.5 27.9 35.2 53.2
(1) The old-age dependency ratio is defined as the number of individuals aged 65 and over per 100 people of working age defined as those aged between 20 and 64.
Source: United Nations Population Division.

The social security system has been in deficit for a decade and is the main reason for the general government deficit (in 2018 it was 1.41% of GDP, more than half the total deficit). Social security contributions collapsed as a result of the crisis after 2008, when unemployment soared and wages declined in real terms, while pension expenditure, which is much less linked to economic fluctuations, maintained its growth in real terms.

The gap between revenue from contributions and spending on pensions was largely covered until 2016 by running down a special reserve set up in 2000 during Spain’s economic boom. That fund peaked at €66.8 billion in 2011. In 2017 and 2018 the gap was covered by recourse to state loans (€10.2 billion and €13.8 billion, respectively).

The Court of Accounts criticised this method in May 2019 for ‘negatively affecting’ the solvency of the social security system and called for the pensions deficit to be covered by taxes.

Action needs to be taken on the revenue and spending side. The Bank of Spain points out that even if the employment rate grows significantly, in order to maintain the present benefit ratio there would have to be a huge increase in revenue from social security contributions. The number of contributors has been growing but is still around one million below the peak of 20.7 million in 2007.

The first steps to increase the retirement age, a significant aspect of the sustainability of the pension system, were taken in 2011, and will be completed in 2027 when it will be 67 (for workers with less than 38.5 years’ contributions). The age at which people are currently retiring is 63, below the statutory retirement age of 65.5, and there is no clearly upward pattern.

The government needs to implement other measures to reinforce the pensions system, such as making plans taken out by individuals more attractive (the amount that is tax deductible was reduced from €12,000 to €8,000 in 2015). Saving for a rainy day, however, is beyond the means of a large swathe of the working population who barely get by as it is. The household saving rate was at a historically low rate of 4.9% of gross disposable income in 2018, well below the peak of 13.4% in 2009.

There are also severe disincentives to combine work and a full pension. Spain is one of only seven OECD countries that applies limits to the earnings above which combined pension benefits are reduced. The pensions of those who continue working are reduced by 50%, apart from self-employed workers earning less than the minimum wage or hiring at least one worker. Furthermore, workers still in employment and receiving a pension do not earn additional pension entitlements although they pay a special ‘solidarity’ contribution of 8%, which does not apply to those continuing to work and deferring the pension.

Making the pensions system sustainable is a complex and highly important challenge that requires all levels of society to be made fully aware of the problem (not the yet the case) and for sacrifices to be made so that the system does not crack.

The persistently high unemployment rate

Spain’s job creation in the last five years has been one of the most robust in the EU. Close to 3 million jobs were created, but that still left 3.3 million without work in the first quarter of this year. The unemployment rate dropped from a staggering 26.1% in 2013 to 14.7% in the first quarter of this year, double the EU average and the second highest after Greece (see Figure 6).

Figure 6. Seasonally adjusted unemployment rates, April 2019 (%)
  %
Greece 18.5
Spain 13.8
Italy 10.2
EU average 6.4
France 8.7
UK 3.7
Germany 3.2
Source: Eurostat.

Unemployment for those aged between 15 and 24 is particularly acute at more than 30%, and most of these people who do have jobs are on temporary contracts. Overall, around 25% of jobholders are on temporary and thus precarious contracts. The dual system of ‘outsiders’ (those on temporary contracts) and ‘insiders’ (those on permanent contracts) is one of the hallmarks of Spain’s dysfunctional labour market.

Temporary workers were the first to lose their jobs when the financial crisis hit as of 2008, particularly in the construction sector, which shed 1.3 million jobs between 2008 and 2018. The number of housing starts plummeted from a peak of 865,561 in 2006 to around 100,000 last year, underscoring the depth of the shaky foundations upon which the economy was roaring along.

High levels of unemployment by the standards of other developed countries, even when the economy is growing at a brisk pace over a sustained period, have characterised Spain in the last 40 years. Comparisons with the last decade of the Franco regime (1939-75) are not fair because the virtually full employment during the last decade of the dictatorship was made possible by considerable pluriempleo (holding two or more jobs) in order to make ends meet, very low female participation in the labour market and massive emigration for economic reasons (2.75 million between the 1950s and 1973). Apart from the real-estate bubble period (2002-08), Spain’s jobless rate has been at least five percentage points above that in Germany, France, Italy, the UK and the US, 10 points higher in the early 1990s and 15 points in 2013 and 2014. Even in 2007, at the height of the economic boom, Spain’s unemployment rate was a ‘historically low’ 8% (the average rate in the Eurozone), a high level for countries such as Germany and the UK.

Companies complained they could not find qualified workers to fill posts, which led some economists to put Spain’s structural unemployment rate at 8%, regardless of the economic cycle and particularly among women and young people.

Workers emerged from the Franco regime with ironclad job security, and those protections remained. Democracy brought class-based political trade unions but the paternalistic labour legislation was seen as a ‘worker conquest’ and political freedom gave the unions the muscle to exploit Franco’s labour regulations (ordenanzas).

All governments in the past 40 years have adopted labour-market reforms of one sort or another (52 between 1980 and 2015), but the problem of high unemployment has not gone away. The first Socialist government introduced temporary contracts in 1984 as an exceptional measure in order to make the labour market less rigid and more flexible and bring the market’s functioning more into line with the European norm (Spain joined the then EEC in 1986). As this system was maintained, employers were quick to use and abuse these contracts, creating the two-tier system that persists today. In 2012, the Popular Party’s reforms, the deepest so far, allowed companies to opt out of collective pay-setting agreements within industries and to make their own deals with workers. They also gave companies greater discretionary powers to adopt internal measures to limit job losses. Dismissal regulations were also modified, redefining the conditions for fair dismissal. Severance payments in the case of unfair dismissal for those on permanent contracts were reduced from 45 days per year-worked with a maximum of 42 months to 33 days per year with a maximum of 24 months and the requirement of administrative authorisation in the case of collective redundancies eliminated. Compensation for permanent contract termination in the case of redundancies for objective reasons was set at 20 days per year-worked with a maximum of 12 months.

These reforms softened employment protection legislation, though severance pay for permanent workers in relative terms remains among the highest in OECD countries. The reforms, however, have lowered the GDP growth rate needed to create employment, spurring the job creation over the last five years.

Spain’s economic model, heavily based on labour-intensive construction and tourism and not very productive, is also part of the unemployment problem as it does not provide jobs on a sustained basis. Spain has a very high number of small companies: fewer than 1% have more than 50 workers (compared with 3% in Germany). Firms need to be bigger so they have economies of scale, which would enable them to export more successfully, among other things. Tourism, which generates 12% of GDP, is a particularly seasonal industry. The Canary Islands, for example, received 15.6 million tourists in 2018 (seven times the islands’ population) and its unemployment rate was 21% in the first quarter of this year.

The country is also at a greater risk from automation, which would compound the unemployment problem. One quarter of middle-income jobs are at risk compared with an OECD average of one sixth (see Figure 7).

Figure 7. Percentage of workers in occupations at high risk of automation, by income class
  Lower income Middle income Upper income
Spain 29 24 15
OECD average 22 18 11
Source: OECD (2019), ‘Under pressure, the squeezed middle class’.

More focus on human capital and less on infrastructure

Spain’s motorways, train services (the high-speed train network is the longest in Europe and the second in the world) and other infrastructure such as the fibre-optic network for high-speed data transmission (it covers three-quarters of the population) are world class. But the same cannot be said for its education system. Too much emphasis has been placed on physical infrastructure and not enough on human capital.

It is an axiom that educational attainment tends to increase employment prospects, and yet almost one in every five people in Spain last year had completed at most a lower secondary education and were not in further education and training, the largest rate in the EU, but down from close to one in three in 2006 when students dropped out of school in droves for a job that was easy to find, particularly in construction. When the massive property bubble burst and unemployment soared many more students had no option but to stay on at school. But Spain’s progress has been nowhere near as stunning as Portugal’s –from 44% in 2000 to 11.8% (see Figure 8)–.

Figure 8. Early leavers from education and training, 2018 and 2006 (% of population aged 18-24)
  2018 2006
Spain 17.9 30.3
Portugal 11.8 38.5
Italy 14.5 20.4
UK 10.7 11.3
EU-28 10.6 15.3
Germany 10.3 13.7
France 8.9 12.4
Source: Eurostat.

Spain has made considerable progress in attainment in the last 40 years and has done better than many other European countries as regards educational mobility: around 40% of adults have a higher level of education than their parents. It also leads in the area of early childhood enrolment rates: 96% of three-year-olds are in education compared with the OECD average of 76%. But, generally speaking, the country is not producing the skills it needs or will need.

Skill demands are more polarised in Spain than in many other OECD countries, with a big share of jobs requiring either very low levels of education or very high levels. The share of all jobs requiring only a primary education is higher in Spain (25%) than in any other OECD country; however, the supply of low-educated workers exceeds demand. At the other end of the labour force, Spain faces high over-qualification and field-of-study mismatch. ‘Rising educational attainment has created a large supply of highly-qualified adults, but many of them are working in jobs for which they are over-qualified’, the OECD noted in a recent report on Spain.

Among the problems of Spain’s education system are endless reforms, which in practice have changed little, learning based excessively on memorisation as opposed to critical thinking, students having to repeat a year if they fail a certain number of subjects (which then demotivates them and leads them to drop out of school at 16), the university entrance requirement to take the teaching course is too low, which means that not always the best quality people become teachers, and a shortage of support personnel and a lack of autonomy for teachers, including the capacity to involve and interact with parents, compared with that, for example, in countries such as Finland and Singapore, among the top countries in the OECD’s PISA tests, which evaluate education systems worldwide by testing the skills and knowledge of 15-year-old students who are nearing the end of their compulsory education.

Teachers in Spain are paid relatively well (above the OECD average) and the average number of students per class is among the lowest (13 compared with 21 in the UK and 22 in France), but the number of support staff per teacher is one of the lowest (one per 11 teachers compared with one for every two teachers in the UK).

Conclusion

The next government has a lot on its plate. Many of the reforms require cross-party support, which in the current climate of minority governments and a parliament fragmented among five main parties (two until 2015) is no easy task. Parties need to put aside their differences for the good of the country.

Bibliographical references

Alain Cuenca & Santiago Lago Peñas (co-directors) (2019), El sector público español: reformas pendientes, Funcas, RIFDE & University of Alcalá.

Economy Ministry (2019), La agenda del cambio: hacia una economía inclusiva y sostenible.

Finance Ministry (2019), Stability Programme Update 2019-2022.

]]>
<![CDATA[ Spain’s influence in the European Parliament: an historical survey and predictions for the new political cycle ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari56-2019-toygur-carnicero-spains-influence-in-european-parliament-historical-survey-and-predictions-for-new-political-cycle 2019-05-21T10:48:10Z

The European parliamentary elections in May 2019 represent a major opportunity for Spain to increase its influence in the EU.

]]>
Original version in Spanish: El peso de España en el Parlamento Europeo: panorama histórico y predicciones para el nuevo ciclo político.

Theme

The European parliamentary elections in May 2019 represent a major opportunity for Spain to increase its influence in the EU.

Summary

The EU’s modus operandi over the last decade has seen it going through a series of existential crises. Given the threat represented by Brexit to the future of integration, the role of predominantly pro-European countries is even more important for moving the project forward. The European Parliament, as the only institution whose members are directly elected, provides a stage on which Spain can try to increase its influence in the decision-making process. This analysis reviews the role of the country in the European Parliament since it joined the Union on 1 January 1986 up to the present day and compares the positions of its political parties and their members with large EU countries. It concludes with some predictions for the May 2019 elections and sets out a roadmap for increasing Spain’s influence. Finally, it should be noted that this paper is part of a wider project by the Elcano Royal Institute focusing on Spain’s presence in the EU and by the working group set up by its office in Brussels to analyse how to improve the country’s influence in the in the 2019-24 cycle.1 This is the fifth paper in a series of publications based on the group’s presentations and debates.2

Analysis

Introduction

Since the first European elections held in 1979, the European Parliament has been consolidating its essential role in the EU’s decision-making process. Its powers increased significantly with the Lisbon Treaty. It now shares legislative powers with the Council of the EU, fulfils other major functions and is important player in the EU’s power map. Moreover, as the only institution whose members are directly elected by European citizens, it is an essential source of legitimacy for the Union.

European elections have traditionally been viewed as secondary by many voters and turnouts have been lower than in national elections. Electorates often punish their national governments in European elections and there is more tactical voting for small parties.3 In the elections scheduled for 23-26 May, a higher turnout is expected after years of politicisation and crisis on the continent. The repeated shocks that the EU has endured in the last decade (crises involving economics, migration and cohesion – the prime example being Brexit) will be evident in greater public interest during the campaign, the ballot and the new parliament. In Spain these elections come at a time when the country wishes and is striving to improve its influence in the EU. Clearly, the internal situation will play a very important role in the form such ambition takes, but it is an opportunity that must undoubtedly be seized.

A European scenario characterised by Brexit on the one hand and the eurosceptic Italian government on the other could enable Spain to present itself as an indispensable partner to the Franco-German axis in advancing towards integration. The Spanish presence in the European Parliament will be a key element in taking advantage of this favourable context for a Spanish push in Europe. The question of how Spanish MEPs are chosen, which committees they sit on and which posts they occupy in the European Parliament is thus of the utmost importance.

It should not however be forgotten that MEPs owe their allegiance to different political groups within the European Parliament. They have two loyalties: one is to the voters in the country that elected them and the other is to the European political family to which they belong. On many issues they act in a coordinated fashion within the political group and not in accordance with national criteria. However, in cases where something important is at stake for the interests of Spain, they act along national lines, as has been seen in recent years in relation to the crisis in Catalonia and the coordinated response of Spanish MEPs from the main parties.

Bearing all this in mind, the main task of the Spanish political parties is to play a significant role within their political groups. It is thus very important to have MEPs who are well prepared and knowledgeable about European affairs, with clear ideas and ideals about the future of Europe. For these reasons, the selection of appropriate candidates by the parties (likewise their choice of relevant committees and well-prepared advisors), the campaign for the European election and the subsequent work undertaken by the representatives present an opportunity to improve Spain’s influence in the EU.

This analysis reviews the role Spain has played in the European Parliament since it joined the EU and compares the important posts that its representatives have held with those of similar countries. Next, the profile of Spanish political parties in the European Parliament over recent decades is reviewed and some predictions are made for the elections in May 2019. It concludes with suggestions for enhancing Spanish influence in the EU.

Spain in the European Parliament: an historical survey

Spain’s entry to the EU in 1986 and the arrival of its first directly-elected MEPs in 1987 coincided with a period when the European Parliament was extending its powers. The first direct elections had taken place just seven years earlier (until 1979, members of the European Parliament were drawn from national assemblies). Secondly, the Single European Act (1986) awarded new powers to the institution, establishing the procedure of legislative cooperation in a large number of areas and giving the European Parliament the power of veto over accession and association treaties.

In 1986 the number of seats in the European Parliament rose from 434 to 518 with the arrival of 60 Spanish and 24 Portuguese MEPs, initially appointed from among their national MPs and subsequently, in 1987, elected in the first European elections in these two countries. Over the last three decades Spanish MEPs have played an important role in the European Parliament, although before reviewing the leadership positions they have occupied it is worth pointing out that Spain has been underrepresented in this institution.

As Carlos Carnero, Victoriano Ramírez González and Ignacio Molina have explained,4 Spain elected 64 MEPs in the 1999 election, but the following year, when the Nice Treaty was being drawn up, prime minister José María Aznar chose to sacrifice seats in exchange for greater influence in the Council of the EU (an ill-judged gambit given that the Council’s voting system changed shortly thereafter and the number of Spanish MEPs has never been restored).

Spain currently has 54 representatives, fewer than it should have in relation to its 46 million inhabitants. The 82 million inhabitants of Germany elect 96 representatives while 66 million French nationals return 74. The seat/population ratio works out worse for Spain, above all when compared to Germany, the most populous country in the EU. With Brexit and the departure of the British MEPs, Spain’s underrepresentation was corrected to some extent when it was allotted an additional five representatives (taking it from 54 to 59 MEPs). The problem is that with Brexit having stalled, the most likely scenario involves retaining the current distribution of seats and Spain remaining underrepresented with 54 MEPs.

In any event, its political parties can play an important role in their respective groups. In the wake of the results of the national election held on 28 April, an attempt may be made to estimate the breakdown of MEPs and thereby maximise influence in the European Parliament. Before turning to this, it is worth comparing Spain to other countries of similar size in terms of the European Parliament’s key posts. This exercise will help to shed light on how Spain should position itself in the next legislative term.

Comparison of country profiles: what position does Spain occupy?5

A comparative look at the role played by Spanish representatives in relation to their German, French, Italian and British counterparts6 places them in mid-ranking position, notable in certain key roles and playing a more low-profile part in others. The presidency is obviously the most influential job and most symbolic in the European Parliament. The power of the president has grown as the institution itself has acquired more areas of responsibility. Particularly notable are the role of the president in arranging the debates in the chamber, presiding over the key decision-making body (the Conference of Presidents) and representing the European Parliament, especially at European Council meetings, where the president addresses the participants at the start of each meeting.

As Figure 1 shows, over the last three decades Spanish representatives have presided over the European Parliament on three occasions: the socialist Enrique Barón from 1989 to 1992; José María Gil Robles, of the People’s Party, from 1997 to 1999; and the socialist Josep Borrell from 2004 to 2007. Spaniards have only been outnumbered in this post by Germans (who have presided over the institution on five occasions). Representatives from France, Italy and the UK have held the presidency on one occasion.

Figure 1. Distribution of key posts in the European Parliament

  Spain Germany France UK Italy
Presidents 3 5 1 1 1
Vice-presidents 28 27 25 19 27
Committee Chairs 32 51 39 40 50
Subcommittee Chairs 1 10 7 1 1
Temporary Committees 3 5 4 2 2
Committee Chairs of Joint Delegations 5 14 9 15 16
Delegation Chairs 49 88 49 67 66
Parliamentary Assembly Chairs 4 4 6 4
Total 125 204 134 151 167
Note: for purposes of comparison all the posts for all the countries are counted starting from 1986, the year in which Spain jointed the EU.
Source: database provided by the Directorate General of the Presidency of the European Parliament.

In terms of the vice-presidents of the European Parliament, Spain is ranked first. Its representatives have held this post on 28 occasions, compared to 27 German, 25 French, 19 British and 27 Italian vice-presidents. By contrast, if one looks at the chairs of committees – another key role, given that chairs wield considerable influence over the agenda and the procedures surrounding the issuing of reports – Spaniards are ranked last (holding 32 chairs, compared with 51 German, 39 French, 40 British and 50 Italian chairs).

Turning to other, less influential posts, such as the chairs of subcommittees, temporary committees, joint delegations, delegations and parliamentary assemblies, Spanish representatives occupy a low to mid-ranking position compared to their counterparts.

In terms of the presidencies of the political groups – another fundamental role in the European Parliament’s power games, given that they operate as spokespeople in the key debates and take part in the Conference of Presidents, the main internal political body – the only Spaniard to have held this post is the socialist Enrique Barón, from 1999 to 2004. It is a post that Spaniards should undoubtedly run for more frequently. In the legislative term now ending, German representatives, once again at the forefront, have led four of the eight political blocs: EPP, S&D, GUE/NGL and the Greens (co-chair). As far as the role of Spanish parties in the next legislative term is concerned, one of the chief ambitions ought to be to secure the leadership of one of these blocs.

Spanish political parties in the European Parliament

Of all the European institutions it is undoubtedly the Parliament where Spain can play a more important role. Thanks to the size of its population and the possibility of Brexit,7 it could have the fourth-largest national delegation in the forthcoming legislative term (or fifth-largest in the event that the UK decides to remain longer in the institution, although its cohort will in any event be weaker owing to the situation of political limbo).

As is well known, the seats are allotted proportionately in accordance with population size. Spain is fifth on the list, which is headed by Germany with 96 seats, followed by France, with 74, and the UK and Italy, both with 73. Spanish MEPs –the majority belonging to pro-European parties– are well placed to play an important and constructive role in the new political cycle.

It is important to emphasise that Spain has been a pro-European country since its return to democracy in the 1970s. Accession to the EU was fundamental in the process of consolidating democracy, the rule of law and fundamental rights. There has been a cross-party consensus on the attitude towards the EU stretching back decades. Up until now, and enduring such upheavals as economic crises, Brexit and the inflows of immigrants that have created a profound identity debate within Europe, the consensus Spanish response has consistently been ‘more integration’. The fact that a far-right party has entered the Spanish Congress for the first time, with VOX winning 24 seats in the general election held on 28 April, suggests that it will secure representation in the European Parliament, thereby challenging this cross-party, pro-European consensus. For the first time, Spanish MEPs may belong to the same group as the French National Rally and the Italian Northern League, although this will only apply to a limited number of the Spanish intake.

Historically, Spanish MEPs have formed part of the European Parliament in the last seven legislative terms, starting with that of 1984-1989.8 The first direct election to the European Parliament in Spain was that of 1987 –when an individual election was held together with Portugal, after Spain joined the year before– and since then it has taken part in the rest of the elections alongside the other member states.

As can be seen in Figure 2, during these seven legislative terms the majority of Spanish seats have had an allegiance to the European People’s Party (EPP) or the Progressive Alliance of Socialists and Democrats (S&D). Given that an imperfect two-party regime has predominated over recent decades, the vast majority of MEPs have been drawn from the People’s Party (PP) or the Spanish Socialist Workers’ Party (PSOE).

Figure 2. Spanish seats classified by political groups in the European Parliament, 1984-2019
Group Abbreviation 84-89 89-94 94-99 99-04 04-09 09-14 14-19
European People’s Party EPP 18 17 29 18 24 25 17
Progressive Alliance of Socialists and Democrats S&D 29 27 21 24 24 23 14
European United Left/Nordic Green Left GUE/NGL 1 3 9 4 1 1 10
Alliance of Liberals and Democrats for Europe ADLE 2 7 2 2 2 2 8
The Greens/European Free Alliance Greens/EFA 1 3 5 3 2 5
Communists and allies COM 3
Not registered NR 7 5 1 1
Total   60 60 64 64 54 54 54
Note: the groups have changed names over time and are classified here along political lines, distributing the seats accordingly.
Source: authors’ compilation from European Parliament data.

The 2008 economic and financial crisis brought changes to the political parties in Spain. With the advent of Podemos and Ciudadanos, Spanish MEPs have also diversified. This accounts for the fact that Figure 2 shows a current national profile that differs from previous legislative terms. Whereas the number of MEPs affiliated to the EPP and S&D have fallen, members of GUE/NGL (likewise the Greens/EFA) and ALDE have risen –precisely because of the success of Podemos and Ciudadanos. The election in May will act as a barometer for measuring the extent to which the multi-party system and the current positions of the parties in the European Parliament has been consolidated.

Predictions for the new political cycle: 2019-2024

For the second time in the history of its direct elections the European Parliament has published detailed opinion polls9 with forecasts of results. The report is based on polls carried out in all the member states, including Spain. According to the new report, published on 18 April, and in line with what has happened in national elections in recent years, an increase in parliamentary fragmentation can be expected, with falls in support for the centre-right and centre-left.

In the new parliament the groups will need to redouble their efforts to secure a majority. The socialist-Christian democrat consensus of recent decades will no longer be decisive when it comes to shaping the European Parliament. For the first time in the history of the elections the two central blocs will not command a majority in the European Parliament. Moreover, the VoteWatch Europe organisation10 estimates that 55%-60% of MEPs will be new. Put another way, more than half of MEPs will require time to adapt to the institution and a significant part of the collective institutional experience will be lost in this parliament.

Turning to Spain in particular, as Figure 3 shows, the predictions suggest that PSOE will be the largest political party, with 18 seats, followed by PP, with 13. The third largest group will be the coalition of Podemos and Izquierda Unida (United Left), which is running in the election as the Unidas Podemos coalition (UP). Ciudadanos and VOX will follow hard on their heels but, given the time that still remains before the election, this order could change. Lastly, the Ahora Repúblicas (Republics Now) coalition is forecast to win two seats.

Figure 3. Predictions for the new legislative term, 2019-2024
National Party Abbreviation Group in the European Parliament Number of MEPs (prediction for May 2019)
PSOE PSOE S&D 18
PP PP EPP 13
Unidas Podemos Coalition UP coalition GUE/NGL & Greens/EFA 8
Ciudadanos Cs ADLE 7
VOX VOX 6
Coalición Ahora Repúblicas Ahora Repúblicas coalition Greens/EFA 2
Source: Report of the European Parliament, April 2019.

If all the member states are taken together, according to the European Parliament report PSOE could become the largest component (or the second-largest, in competition with the British Labour Party) in the S&D group in the European Parliament. Similarly, Spain could have the greatest number of MEPs in the federal European United Left/Nordic Green Left (GUE/NGL) group with its representatives from the Unidas Podemos coalition.

Ciudadanos will be among the three largest parties that make up the Alliance of Democrats and Liberals for Europe (ALDE). PP will be able to claim a place as one of the three main political forces in the European People’s Party, vying for this role with Fidesz of Hungary and the Republicans of France. Bearing this in mind, Spanish political parties stand a good chance of playing more important roles in their future political groupings. This could represent a major opportunity for enhancing Spain’s impact on the European Parliament and, by extension, joining forces to ensure a greater degree of influence for Spain in Europe.

The day after 26 May: what does Spain need?

If Spain is to secure greater room for manoeuvre it needs an EU strategy that takes advantage of its strengths and minimises its weaknesses. Such a strategy, which needs to be state-driven rather than party-driven, does not currently exist. A joint strategy has never been hammered out between all the political parties, although it is true that they are capable of close cooperation when some ‘flare-up’ breaks out threatening Spanish interests. Elaborating a strategy would help the country increase its impact in Brussels and the other centres of EU power.

It is worth pondering which areas a grand agreement should cover. Clearly the creation of a strategy, including foreign policy, requires a consensus between political parties. This links to the internal situation in the country. It is important to emphasise that national stability will also determine the role that Spain can play at a European level. If it continues to be hostage to the separatist tensions in Catalonia, its efforts on the European political stage will be affected. It should not be forgotten that just as the separatist movement strives to internationalise the Catalan procés, Spain exerts energy in rebutting it; energy that could very well be expended on other issues. Settling this crisis would therefore pave the way to greater Spanish influence abroad.

The parties should study which areas need to be prioritised to determine their European strategy. As far as foreign policy is concerned, is it the fight against climate change, renewable energy policy or controlling borders? It will be very important to set out the areas where Spain enjoys comparative advantages. The lack of an internal debate about the future of integration and the role of Spain in the project –European politics as an issue was completely absent from the parties’ campaigns in the general election– restricts the likelihood of having an impact. Without a major debate about Spain’s influence abroad, setting out clear and feasible aspirations, it will not be possible to have an effective strategy capable of being put into practice.

Another possible approach would be to create synergy between the countries of southern Europe. There are examples of influence exerted by regional groups of countries, such as the Visegrád Group and the New Hanseatic League. These groups defend their positions on key issues and try to exert the greatest influence possible by taking advantage of their geographical position. Spain could start to construct its regional role, turning first towards Portugal. The creation of an Iberian strategy could be beneficial for both countries.

Lastly it is important to underline that Spanish MEPs will need to secure key posts in the European Parliament, starting with the group presidencies and followed by the rapporteur postson major issues, thereby strengthening their influence in parliament. This is why it will be necessary to lay the groundwork and make preparations before and after the election, choosing the battles between the political parties and preparing to fight within the political groups. Spain should not miss the boat when it comes to securing greater influence.

Conclusions

This analysis summarises the situation of Spain in the European Parliament over recent decades. It refers not only to the key posts that Spaniards have occupied but also the role of its political parties. An overview of the past may serve as the basis for strategy in the forthcoming parliament. There are three key suggestions for the future:

  • The European election campaign will need to ensure that the Spanish parties set out their European aspirations and that the candidates explain the role that the European Parliament plays and how this institution can provide leverage leading to greater influence abroad. In the absence of this it is impossible for the electorate to appreciate the importance of their votes.
  • There will need to be a period of reflection among the parties after the European election to design a joint strategy aimed at enhancing Spain’s influence. We all know the oft-repeated refrain: the country punches below its weight, but very rarely does it engage in dialogue and joint endeavour in a strategic and concerted manner to meet this challenge.
  • Of utmost importance for the first two suggestions, it will be necessary to overcome fragmentation and tap into the relative strength of PSOE, UP, PP and Cs in their respective political groups in the European Parliament. Despite the highly polarised nature of national politics at this juncture, the parties will need to try to overcome this abroad. By agreeing a joint national strategy, each party will be able to play an important role in shaping committees, reports and certain key posts.

Ilke Toygür
Analyst, Elcano Royal Institute | @ ilketoygur

Carlos Carnicero Urabayen
Journalist | @CC_Urabayen


1 The working group comprises Spanish players with a permanent or habitual presence in Brussels, including MEPs, Spanish civil servants at European institutions, business managers, members of other civil society entities, press correspondents and representatives of the Spanish government and administration, particularly staff at Spain’s Permanent Representation at the EU (REPER). The identity of members is confidential in order to encourage a greater atmosphere of trust and understanding.

2 The currently available publications are: (1) L. Simón, I. Molina, E. Lledó & N. Martín (2019), ‘Hacia un ecosistema de influencia española en Bruselas’, ARI nr 30/2019, Elcano Royal Institute, 11/III/2019; (2) E. Lledó & M. Otero Iglesias (2019), ‘Los intereses españoles en la agenda digital y la política industrial de la UE’, ARI nr 39/2019, Elcano Royal Institute, 5/IV/2019; (3) I. Molina & N. Martín (2019), ‘La crisis catalana y la influencia de España en Bruselas’, ARI nº 42/2019, Elcano Royal Institute, 25/IV/2019; and (4) F. Steinberg (2019), ‘La influencia de España en la política económica de la UE’, ARI nr 43/2019, Elcano Royal Institute, 29/IV/2019.

5 For the present purposes a series of key posts at the European Parliament have been chosen (the president of the institution, the vice-presidents, the chairs of the committees, subcommittees, temporary committees, committees of joint delegations, delegations and parliamentary assemblies) to measure the influence of the Spanish representatives. The authors would like to thank the Office of the European Parliament in Madrid for its help in compiling these data.

6 German, French, Italian and British MEPs were used for the purposes of comparison because these, together with Spain, represent the five largest countries in the EU. The data only encompass the period starting in 1986, when Spain joined the EU. All the figures are drawn from this period.

7 The UK has announced that it is going to hold elections to the European Parliament and therefore Spain will once again have 54 seats. In the event of the UK’s departure, Spain will send five more MEPs (in accordance with the results of the election on 26 May 2019).

8 Spain joined the EU in 1986 and held elections to the European Parliament in 1987. Simultaneous municipal and regional elections were held with the aim of improving the turnout (electing the 60 MEPs that were allotted to Spain at this time).

9 For the most recent report see ‘European Elections 2019’.

]]>
<![CDATA[ Spain’s socialists beat a divided right but without a clear majority ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/commentary-chislett-socialists-won-spains-third-general-election-in-less-than-four-years-but-without-governing-majority 2019-04-29T02:02:25Z

The Socialists won Spain’s third general election in less than four years, but without a governing majority.

]]>
The Socialists won Spain’s third general election in less than four years, but without a governing majority, while an upstart far-right party (VOX) stormed into parliament for the first time since the Franco dictatorship, producing the worst-ever result for the conservative Popular Party (PP) and splitting the right along with Ciudadanos (Cs).

Voter turnout in the most aggressively fought and contentious election for years was 75.7%, well up from 69.8% in 2016 and underscoring the sense among the electorate that the contest between five parties in a highly fragmented panorama represented a defining moment for the country.

“The Socialists’ victory is a personal triumph for Sánchez, but he faces a difficult task in finding the extra support he needs”.

The Socialists under Pedro Sánchez won 123 of the total 350 seats, 38 more than in 2016, and with the radical left Unidas Podemos (UP) would command 165 seats, 11 short of the magic number of 176 in order to rule with an absolute majority (see Figure 1). The three parties on the right have 147 seats between them and will not be able to repeat at the national level what they have in Andalucía since last December , when they won a majority of seats in the region’s parliament.

Figure 1. Results of general elections, 2019 and June 2016 (seats, millions of votes and % of total votes)

  2019 2016
Seats Votes % Seats Votes %
Socialists 123 7.48 28.7 85 5.42 22.6
Popular Party 66 4.35 16.7 137 7.90 33.0
Ciudadanos 57 4.13 15.9 32 31.2 13.1
Unidas Podemos 45 3.73 14.3 71 5.04 21.1
VOX 24 2.67 10.3
Catalan Republic Left 15 1.01 3.4 9 0.62 2.6
J×Cat (1) 7 0.49 1.9 8 0.48 2.0
Basque Nationalist Party 6 0.39 1.5 5 0.28 1.2
EH Bildu 4 0.25 1.0 2 0.18 0.8
Canarian Coalition 2 0.13 0.5 1 0.07 0.3
Others 4 0.33 1.2
Voter turnout 75.75     69.84    

(1) CDC in 2016.
Source: Interior Ministry.

Sánchez came to power in June 2018 in a minority government after dislodging the PP in a censure motion over a corruption case, but had to rely on parliamentary support from UP, Catalans in favour of independence and Basque nationalists. He was forced to call a snap election after Catalan MPs refused to support the government’s 2019 budget because he did not advance the cause of Catalan independence.

The Socialists’ victory is a personal triumph for Sánchez, but he faces a difficult task in finding the extra support he needs without having to resort again to the pro-independence Catalan MPs, which he desperately wants to avoid. That support infuriated the right, and was a catalyst behind the success of VOX, which incessantly banged a drum that Sánchez wanted to break up Spain. VOX also militantly opposes multiculturalism, unrestricted migration and what it calls ‘radical feminism’.

The backing of the Basque Nationalist Party, with six seats and the Canarian Coalition with two would still leave the Socialists three short of an absolute majority. An alliance with just Cs would produce a government with 180 seats, but Albert Rivera, the party’s leader, ruled out a coalition with the Socialists even before campaigning began. An alliance with Cs, however, would upset many Socialist voters and would make UP the left-wing opposition in parliament. The other alternative would be for the Socialists to carry on as a minority government, albeit in a stronger position than before. Spain, together with Malta, is the only EU country that has not had a coalition government at the national level in the last 40 years.

Many analysts believe a coalition between the socially-progressive Socialists and the pro-market Cs would produce the kind of stable government that Spain badly needs, but Rivera’s strategy is to become the main party on the right, and it is paying off. Cs almost doubled the number of its seats to 57, only nine fewer than the PP, whose result was its worst ever. Its share of the vote was halved to 17%.

The Socialists and the PP, the two parties that have alternated in government since 1982, obtained 45.4% of the vote, down from 55.6% in 2016 and a peak of 83.8% in 2008, when between them they had 89% of the seats in parliament (see Figure 2).

Figure 2. The rise and fall of the Socialists and Popular Party in general elections between 1982 and 2019 (% of total votes cast)

  Socialists Popular Party (1) Combined votes
1982 48.1 26.4 74.5
1986 44.1 26.0 70.1
1989 39.6 25.8 65.4
1993 38.8 34.8 73.6
1996 37.6 38.8 76.4
2000 34.2 44.5 78.7
2004 42.6 37.7 80.3
2008 43.9 39.9 83.8
2011 28.8 44.6 73.4
2015 22.0 28.7 50.7
2016 22.6 33.0 55.6
2019 28.7 16.7 45.4

(1) Popular Alliance until 1989.
Source: Interior Ministry.

While the PP suffered a debacle, the two pro-independence parties in Catalonia increased their seats in the national parliament from 15 to 22 and the number of their voters rose from 1.1 million to 1.5 million.

Resolving the Catalan issue is one of the main challenges facing the next government. Twelve Catalan separatist leaders have been on trial since February on charges including rebellion, which carries a sentence of up to 25 years. Nine of them have been in prison for 17 months. Whatever the sentence, this is an issue that is far from going away.

The new government also needs to approve the budget for this year. The fiscal deficit dropped below the EU’s threshold of 3% of GDP last year (to 2.5%), making Spain the last country to be released from the excessive deficit procedure after 10 years. But there is little leeway for a return to the days of carefree spending. The economy hardly figured in the campaign, even though unemployment is 14% and public debt is close to 100% of GDP.

“Resolving the Catalan issue is one of the main challenges facing the next government”.

According to a study by the Club de Exportadores fewer than 1% of the parties’ proposals referred to foreign trade and more broadly to the economy’s internationalisation . Exports of goods and services have played a key role in the economic recovery over the last decade (rising from 22% of GDP to 34% in 2018). Spain was the improbable locomotive of the eurozone in 2018 as it was the largest single contributor to the area’s growth.

Education is another critical area. Spain’s early school-leaving rate last year at 18% of those aged between 18 and 24 was still close to the double the EU average.

How long it takes to form a new government is anyone’s guess. With regional, municipal and European elections on 26 May, Sánchez might wait for the outcome of these results before making a move.

William Chislett
Associate Analyst, Elcano Royal Institute
| @WilliamChislett3

]]>
<![CDATA[ The 1981 coup d’état and trial in Spain: possible lessons for Turkey ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/wp7-2019-powell-1981-coup-detat-and-trial-spain-possible-lessons-for-turkey 2019-04-20T11:22:01Z

This paper briefly analyses the attempted coup d’état carried out in Spain in February 1981 and the trial that was held in its aftermath, with a view to extracting possible lessons that might prove useful to those currently engaged in post-coup justice in Turkey.

]]>
Index

Summary
The past as prelude
From Civil War to dictatorship
The transition to democracy
Democratic consolidation and military unrest
The attempted coup of 23 February 1981
The 23-F trial and subsequent appeal (1981-83)
Ten (possible) lessons from the Spanish experience
References.

Summary

This paper briefly analyses the attempted coup d’état carried out in Spain in February 1981 and the trial that was held in its aftermath, with a view to extracting possible lessons that might prove useful to those currently engaged in post-coup justice in Turkey.

The past as prelude

Spain has had a long history of military interventions in political life. In the 19th century, these generally took the form of a pronunciamiento (literally, ‘a pronouncement’), a ritualised challenge for power on the part of the army which became institutionalised as a mechanism for changing the government in office. Contrary to what is often assumed, not all military interventions were reactionary in nature; the liberal and progressive factions in Parliament also had their supporters within the army. Thus, major pronunciamientos resulted in changes of government in 1820, 1843, 1854, 1868 and 1874. Not surprisingly, the constitutional settlement finally reached in 1876 under King Alfonso XII was largely aimed at removing the army permanently from the political sphere, something it achieved quite successfully until 1923.

In the course of the 20th century, Spain experienced five significant military uprisings (in 1923, 1930, 1932, 1936 and 1981), only two of which were successful (those of 1923 and 1936). The first was carried out by General Miguel Primo de Rivera in September 1923, and was opposed by almost no one and welcomed by many. Although this has sometimes been portrayed as yet another pronunciamiento, it was somewhat different in that it aimed to overthrow not just the government of the day but the parliamentary system created in 1876, replacing it with something new. With the tacit acquiescence of King Alfonso XIII, Primo de Rivera was able to establish a formal military dictatorship (1923-25), which subsequently became a civilian one (1926-29), but he failed to consolidate this as a stable form of authoritarian rule. After losing the support of both the King and the army, Primo went into exile in Paris in 1929, where he died quietly in 1930.

In the wake of his departure, the King sought to revive the political system that had existed until 1923, but without success. It was in this turbulent context that a small group of left-leaning army officers rose against the monarchy on 12 December 1930 in support of the republican parties which were actively plotting for a change of regime. The uprising was a complete failure, and its leaders, Captains Fermín Galán and Ángel García Hernández, who had their headquarters in Jaca, a small provincial town in northern Spain, were subsequently court-martialled and shot, as a result of which they rapidly became prominent martyrs of the republican cause.

The collapse of the dictatorship paved the way for free municipal elections in April 1931, the proclamation of the Second Republic and the departure of King Alfonso XIII. The ambitious progressive agenda of the leftists and republicans who largely won the first democratic elections and later wrote the Constitution of 1931 included a far-reaching reform of the armed forces, which was inevitably resisted by the more conservative elements of the military, who interpreted it as an attempt to emasculate them. Ironically, the leader of the first military coup attempt against the Republic, General José Sanjurjo, who had supported Primo de Rivera’s take-over in 1923, had initially facilitated the monarchy’s downfall in 1931 by refusing to use the para-military Civil Guard units under his command against republican demonstrators. However, Sanjurjo soon became disillusioned with the new regime and in August 1932 he led an uprising against the government from his military headquarters in Seville. Although he initially succeeded in taking control of the Andalusian capital, he failed to attract the support of other senior military figures, and the coup attempt collapsed within days, resulting in 10 deaths and the General’s arrest. Sanjurjo was subsequently tried with 150 others and sentenced to death, but the republican authorities, determined not to make a martyr of him, later commuted this to life imprisonment. However, after winning the second general election held under the Republic in 1933, the new centre-right government adopted a general amnesty in 1934 which freed Sanjurjo and his co-conspirators, most of whom later played a prominent role in the 1936 uprising that would eventually lead to the regime’s destruction.

From Civil War to dictatorship

The most significant military coup ever carried out in Spain was of course the right-wing uprising which took place in July 1936. It is often forgotten that a very significant proportion of the Spanish armed forces remained loyal to the Republic, which explains why the coup was only partially successful. Although it has sometimes been described as ‘the rebellion of the Generals’, this is an inaccurate portrayal of events: out of 18 divisional Generals, including those of the Civil Guard and the Carabineros, only four (one of them being General Francisco Franco) took part in the uprising (the uprising should have been led by none other than Sanjurjo, who was in exile in Portugal, but his death in a plane crash accidentally paved the way for Franco’s rise to pre-eminence). Similarly, only 14 of the 56 brigade Generals who were serving at the time rebelled against the government. Overall, of the 15,301 officers in all branches, corps and services active in July 1936, just over half clearly supported the rebellion. The rebels were in fact defeated in most large cities, including Madrid, Barcelona and Valencia, where they came up against the united resistance of other armed forces loyal to the Republic and political and trade-union militants. The division of the army and the police was thus crucial in thwarting the military rebellion, and in preventing it from achieving its immediate goal, the seizure of power. However, by decisively undermining the republican government’s ability to maintain order, the coup d’etat gave way to a civil war and the violence of armed factions.

This only partially successful coup thus led to a bloody, three-year long civil war, something the insurgents had never expected. Ironically, the war ended with yet another coup in March 1939, led by Colonel Segismundo Casado, which has been seen as a ‘rebellion of the officers’ against a Republican government whose legitimacy they no longer recognised. Casado and his camp assumed that it would be easier to settle the war amongst officers, but Franco insisted on an unconditional surrender, which he finally achieved a few weeks later. According to recent estimates, nearly 600,000 Spaniards died in the conflict, of which 100,000 deaths were due to the repression unleashed by the rebels, and 55,000 to the violence in the Republican zone, while another 50,000 were executed in the decade following the end of the war. Much of this repression was carried out under the authority of the Law of Political Responsibility (1939), which set out to punish ‘any person or body’ that had opposed the July 1936 uprising. In other words, it was those who had remained true to the Republic who were to suffer the consequences of their loyalty, while the rebels savoured the fruits of their disloyalty.

The Nationalists’ victory led to the establishment of a personal dictatorship under Franco that survived until his death in November 1975, the only one in Europe to have emerged as a result of a civil war. For obvious reasons, those involved in the 1936 coup were regarded as heroes by the regime, which portrayed the civil war as a ‘crusade’ against communists, freemasons, separatists and other ‘enemies of Spain’.

The transition to democracy

Spain’s democratising process is a paradigmatic case of a ‘transition through transaction’, characterised by the following features: the (paradoxical) use of the former regime’s institutions and constitutional procedures to initiate the democratising process; negotiations between ‘soft-liners’ in the out-going authoritarian regime and representatives of major opposition groups; the inclusion of representatives of all key political forces in the decision-making process; and private, face-to-face deliberations at crucial stages, involving a relatively small number of participants. Some have argued that ‘transitions through transaction’ are also characterised by relatively low levels of popular mobilisation, but the Spanish experience suggests they are compatible with relatively high levels of pressure ‘from below’ if political actors are willing and able to modulate this in response to concessions made ‘from above’. Some also claim that ‘transitions through transaction’ can only succeed in the absence of political violence, but Spain experienced 453 deaths from political violence in 1975-80; indeed, it was partly the fear that this violence might derail the transition process that encouraged political elites to negotiate in the first place.1

Spain’s relatively brief transition to democracy was launched ‘from above’, but it accelerated in response to mounting pressure ‘from below’. It was essentially driven by domestic actors, though the European Community and some of its member states, notably Germany, actively supported democratisation (through its parties, trade unions and political foundations). Its origins largely reflect the political dilemmas facing King Juan Carlos, who needed to acquire a new democratic legitimacy for the monarchy in order to guarantee both his survival as head of state and the continuity of his dynasty. The monarchy Juan Carlos inherited in 1975 was not the institution embodied by his grandfather Alfonso XIII until 1931, but rather an entirely artificial, authoritarian monarchy designed to perpetuate the regime. However, Juan Carlos did not inherit all of Franco’s powers: the Organic Law of the State (1967) had designed a monarchy in which the King’s role was severely curtailed by the combined authority of the Prime Minister and the President of the Cortes (parliament), who shared effective control over the political system. Paradoxically, this meant that from the outset the King had a vested interest in a constitutional reform that would free him from the tutelage of unelected officials.

In the first stage of the transition, Prime-Minister Carlos Arias Navarro, who increasingly identified with the regime’s ‘hard-liners’, advanced a blueprint for limited reform which would have led to the election of a semi-democratic Cortes and the legalisation of some parties, such as the Socialists (PSOE) but not the Communists (PCE). This was rejected outright by an increasingly active opposition, mass mobilisations (which sometimes resulted in loss of life), new media outlets and the European parliament.

The King’s decision to replace Arias Navarro in July 1976 with Adolfo Suárez, a 44 year-old apparatchik of the former regime, known for his ambition and audacity, was a crucial turning-point. Suárez quickly produced a Law for Political Reform which called for a two-chamber Cortes: a Congress of Deputies elected according to principles of proportional representation, and a majoritarian Senate. In keeping with the procedure envisaged by the Francoist fundamental laws, the bill was first approved by the existing Cortes in November by 425 votes in favour and 59 against. In December, it was ratified by a referendum that recorded a 77% turn-out (with 94% of votes in favour), in spite of the opposition’s decision to abstain on the grounds that it had been excluded from the entire process.

The referendum considerably strengthened Suárez’s hand; it was only after it that he engaged in formal talks with the opposition’s ‘Committee of Nine’. The talks centred on the seven conditions the opposition demanded be met if it was to take part in future elections, which included the legalisation of all political parties and trade unions, the political neutrality of public employees, a generous amnesty, the negotiation of an electoral law and the acknowledgement of regional political identities. In fact, these did not constitute formal negotiations; rather, it was a case of Suárez listening to the opposition’s demands and skilfully translating them into legislation. Most importantly, the talks led to the legalisation of the PCE in April 1977, whose exclusion would have rendered the process illegitimate in the eyes of many Spaniards. This paved the way for the first democratic elections, held in June 1977, which, in turn, produced the ideal outcome: the high turn-out (79%) confirmed their legitimacy, and the strong showing by Suárez’s Union of the Democratic Centre (UCD), which obtained 34% of the vote and 165 out of 350 seats, allowed him to remain in office. At the same time, the PSOE emerged as the leading opposition party with 29% of the vote and 119 seats, well ahead of the PCE, which obtained a mere 9% of the vote and 20 seats, while the neo-Francoist Alianza Popular had to make do with 8% of the vote and a paltry 16 seats.

The final stage of the transition consisted of a series of agreements involving all the major political actors. The first of these were the Moncloa Pacts signed in October 1977, which sought to restore growth to an ailing economy and to curb inflation by means of far-reaching structural reforms and negotiated wage restraint. In return for the latter, the Pacts introduced a new system of direct income tax, which would largely finance the spectacular growth of Spain’s health and education systems in the 1980s. Another major initiative adopted in October 1977 and requiring a broad political consensus was the Amnesty Law, which benefited all those tried for so-called political crimes committed against the Franco regime prior to the recent elections, including ETA terrorists who had been convicted of murder. At the same time, however, it also guaranteed that former servants of the regime would not be investigated or prosecuted for the human rights violations they might have committed in the past, thereby ruling out the possibility of purging the armed forces, the police or the judiciary. The Amnesty Law was thus the most significant expression of the tacit, unspoken agreement reached by former Francoists and the democratic opposition in an effort to prevent Spain’s traumatic past from becoming an insurmountable obstacle on the road to democracy. To some extent, this so-called ‘pact of forgetting’ was built on a widely-held interpretation of the civil war which saw it as a fratricidal tragedy for which both sides shared responsibility. As a result of this legislation, ‘transitional justice’ was to be notoriously absent from the Spanish democratising process.

Thirty years later, in what might be described as a belated attempt at ‘post-transitional justice’, the Spanish parliament finally adopted a highly controversial Law of Historical Memory (2007), which offered reparations to those victimised by past injustices and formally condemned the Franco regime as ‘illegitimate’. Surprisingly, however, the law did not nullify the verdicts of those sentenced by Francoist tribunals, including the kangaroo courts created after the end of the civil war in 1939. Nor did it overturn the 1977 Amnesty Law, making it highly unlikely that anyone associated with the old order will ever face prosecution on human rights charges. What is more, in 2010 a court indicted Baltasar Garzón, the judge who had gained world-wide fame for his indictment of Chilean General Augusto Pinochet, on the grounds that he had abused the powers of his office in his attempt to use the Law of Historical Memory to prosecute former Francoist officials. Although he was later acquitted on this count, other charges forced him to relinquish his judicial post, thereby ending all meaningful efforts to bring the former regime to justice, at least for the time being.

By far the most important product of the transitional consensus was the new democratic constitution adopted after 16 months of negotiations between the representatives of all parliamentary parties, which was put to a referendum in December 1978. The debates that dominated the constituent process centred on the same issues that had plagued the Second Republic, but on this occasion they were dealt with far more pragmatically. The Socialists initially put forward an amendment that would have made Spain a republic, but once it was defeated by the other major parties (including the PCE, which had agreed to recognise King Juan Carlos in return for its legalisation), they quickly endorsed the new parliamentary monarchy. The constitution disestablished the Roman Catholic Church, while at the same time acknowledging the right of all children to receive religious instruction in public schools, and the state’s obligation to support religious schools. In its treatment of economic issues, the new text balanced the preferences of the right against those of the left. It explicitly acknowledged the market economy and protected private property and inheritance rights against unlawful confiscation, but also contained guarantees of the right to strike and commitments to provide a broad range of social services, including social security, health, education, disability and unemployment benefits, as well as the promise of a more egalitarian distribution of income. The constitution also included provisions regulating the devolution of powers from the central government to the autonomous communities (regions), paving the way for the development of Spain’s future semi-federal State of Autonomies; although these efforts initially proved sufficient to accommodate Catalan nationalists, they failed to satisfy their Basque counterparts. Finally, while the Francoist Organic Law of the State (1967) regarded the Civil Guard and the then Armed Police (subsequently reorganised in late 1978 as the National Police) as integral parts of the armed forces, the new constitution (article 8.1) distinguished clearly between the military and the security forces. However, the constitution failed to clarify whether the armed forces were simply part of the public administration (like the postal service, say), and therefore totally subordinate to the government, or an institution with its own peculiar characteristics, which enjoyed a special relationship with their commander-in-chief (and head of state). Thus, although the constitution allowed the King to exercise ‘the supreme command of the armed forces’ (article 62 (h)), it also gave the government control of the ‘civil and military administration and the defence of the state’ (article 97).

Charles Powell
Director, Elcano Royal Institute
| @CharlesTPowell


1 Powell (2016), pp. 44-45.
]]>
<![CDATA[ The economic effects of Brexit in the “Campo de Gibraltar”: an econometric approach ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari26-2019-galianobastarrica-economic-effects-brexit-campo-de-gibraltar-econometric-approach 2019-02-26T05:31:28Z

The UK’s exit from the EU has become a political maze. Uncertainties increase and so do the negative economic effects, especially on Britain’s European borders: Northern Ireland and the Campo de Gibraltar in Spain.

]]>
Original version in Spanish: Efectos económicos del Brexit en el Campo de Gibraltar: un modelo econométrico.

Theme1

The UK’s exit from the EU has become a political maze. Uncertainties increase and so do the negative economic effects, especially on Britain’s European borders: Northern Ireland and the Campo de Gibraltar in Spain.

Summary

Geographical proximity generates positive economic effects to the inhabitants of the Campo de Gibraltar, the area adjoining Gibraltar, due to cross-border employment (workers with a job in Gibraltar who live in the Campo) and the exchange of goods. This economic impulse is clearly necessary in a region with high levels of unemployment. However, the increasingly likely absence of an agreement is jeopardising these effects: both parties (Gibraltar and the Campo), considering the institutional instability in the UK, are readying themselves for the worst-case scenario.

In this context, the Campo is more than ever marked by the border with Gibraltar: in a hard Brexit (with no deal between the EU and the UK), the flows of goods, capital and labour will no longer be ensured or protected and non-tariff barriers will rise. This will entail remarkably negative consequences for the economy of the region. Losses due to Brexit are inevitable, but they can be reduced if there is an agreement concerning the special status of Gibraltar and its future.

Economic models such as the one presented in this paper can be a useful tool to shed light on a complex phenomenon like Brexit in the context of the Campo de Gibraltar. Predictions have been made under two alternative scenarios which correspond to a higher or lower degree of mobility of production factors. Their results have been compared with a counterfactual scenario, where the UK remains an EU member. All the predictions point to a common result: the Campo de Gibraltar will suffer worse economic effects if there is no deal.

Analysis

The UK’s exit from the EU has generated significant debate about the future of the European project in every dimension. Debate is growing in complexity and volatility and has been heightened by the division of the ‘Leave’ supporters as well as by the lack of a real alternative,2 with the Labour Party divided between a blurry scepticism and a discrete and reluctant support for a second referendum.

Nonetheless, the complexity of the debate should come as no surprise: the relations between the UK and the EU have never been simple even before the beginning of the European Communities, and they became especially tortuous since the Fontainebleau Summit in 1984, when Margaret Thatcher pronounced her famous ‘I want my money back’. The summit was a milestone in these complicated relations, because it began a sequence of grants and privileges to the UK that might otherwise have abandoned the European project long before 2016.

All these European issues have their consequences at the local level, more specifically on the border that separates the seven municipalities of the Campo from Gibraltar. In this region 10,000 cross-border workers,3 whose earnings impact the entire local economy, depend on the border. Moreover, the business network generated by geographical proximity sees a no-deal scenario with increasing concern.

Sector analysis: economic interaction between Gibraltar and the Campo

The economies of Gibraltar and the Campo are closely linked. Their geographical proximity makes possible a high volume of exchange of production factors between them: around 18.5% of the region’s GDP in 2013 was due to the interaction with Gibraltar and the volume has been increasing over the past few years.4 5

Two types of interaction between the economies have been identified: cross-border employment and the exchange of goods. The first refers to the workers with a job in Gibraltar that reside in the Campo, whereas the second relates to the important volume of trade (not only goods but also services) that takes place between the two areas. The enrichment has been mutual: Gibraltar also benefits from the geographical proximity and, until now, also from the integration process.6

Cross-border employment generates around 11% of the total employment in the Campo7 and it is concentrated mainly in the wholesale and retail sectors, as well as in construction and the hotel industry. Assuming that cross-border workers adopt the same expenditure pattern to the rest of the Campo’s workers,8 their wages are mainly spent on housing, groceries, leisure and transport, generating new cycles of activity.

Concerning the cross-border exchange of goods, Gibraltar’s imports from Spain9 are concentrated in construction materials, wholesale and retail.10

This sectoral analysis shows that there are synergies between cross-border employment and the exchange of goods between the Campo and Gibraltar: the sectors in which trade is greater are those that employ a higher number of cross-border workers. The productive structures of both economies are complementary; hence the importance of ensuring the flow of productive factors without imposing obstacles at the border.

Theoretical analysis: towards a theory of the economic disintegration?

Brexit also offers an opportunity to revise economic doctrine. Until now, economic theories have studied the rapprochement between different economies as a cumulative and gradual process formed by different stages that acted as a sequence: in the case of the EU, the starting point was a customs union followed by an imperfect single market that would ultimately lead to a still incomplete monetary and economic union.

Generally, economic integration processes begin by a ‘negative’ integration that consists in eliminating obstacles to trade between Member States. As the integration process moves forward it starts to shift towards a ‘positive’ integration defined by the creation of institutions that drive and articulate the process.11 It will need two conditions to be successful: similar initial economic situations of the Member States12 and the existence of a consensus in the formal criteria to be adopted during integration, which can vary between intergovernmental and supranational.

The EU, however, did not comply with any of these two initial conditions: there were not enough economic symmetries between the Member States and there were significant differences between the approach that should be adopted for the European project to be successful. These divergences in the formal criteria slowed down its development since the very beginning, especially in the UK’s case.13 Even so and despite these difficulties, the EU has helped Member States decisively in achieving levels of wealth that would have been unreachable without an integration process.

Brexit, however, disrupts considerably the rules of the game and brings up the need of analysing the costs of re-establishing the barriers that were removed a long time ago. This new field in economic doctrine has been named the ‘theory of economic disintegration’ and it pursues the study of the increasing fragmentation of global value chains. The model presented in this paper uses this approach to reach its conclusions.14

How can Brexit be applied to this new paradigm? There are two key ideas: first, the research carried out so far agrees in that Brexit will have adverse effects for the UK’s economy because it will create new obstacles to trade, immigration and foreign investments. However, studies differ in the magnitude of these effects in the long term and point to uncertainty as the greatest concern in the short and medium terms.15

Secondly, the political momentum of Brexit has brought up an uncomfortable debate about the future of the European project, especially amongst Eurosceptics: is the European project truly compatible with the national sovereignties of Member States? The theory of economic disintegration does not only quantify the price that the UK will have to pay for its withdrawal, but also reflects the direction that the European project itself should take.16 This concern has been laid down by the European Commission in its recent ‘White Book about the Future of Europe’.17

Plausible scenarios after Brexit

The model in this paper analyses the economic effects of Brexit in the Campo de Gibraltar under two alternative scenarios that are compared to a counterfactual. The first scenario (‘optimistic’ in Figure 1 below) consists of a ‘soft’ Brexit, where the UK and the EU are able to reach an agreement that remarkably reduces non-tariff barriers but maintains the obligation of European standards for the products exported to Europe from the UK. The latter has full sovereignty overs migration control and borders. Concerning Gibraltar, the border is open but bureaucratic costs and non-tariff barriers increase compared with the counterfactual scenario.18

Conversely, in the second scenario (‘pessimistic’ in Figure 1 below) there is no agreement between the UK and the EU and the former negotiates its commercial position vis-à-vis the European countries through the World Trade Organisation (WTO). This would increase restrictions on the movement of people, goods and services between Gibraltar and the Campo, resulting in a significant downturn in economic activity.

In the counterfactual scenario the UK remains a Member State in the EU. It retains the four freedoms of the single market and also its obligations. We assume that economic activity between Gibraltar and the Campo does not vary because the model tries to isolate the structural effects of Brexit.

Predictions

The predictions hereby presented have been made using a data base prepared specifically for this model. The variables have been carefully selected considering the interactions presented in the sectoral analysis: cross-border employment and exchange of goods. Since no disaggregated data for the Campo are available it has been necessary to territorialise it with regional data using a GAV (Gross Added Value)-related distribution key, using the methodology used by the Statistical Institute of Andalucía in similar studies.19

The model’s variables are as follows: income per habitant in the Campo; number of cross-border workers; employment level in the Campo; Gibraltar’s imports from Spain; Gibraltar’s GDP; and household income in the Campo. All of them have been used to create an econometric regression using the Ordinary Least Squares (OLS) technique where income per inhabitant acts as the dependent variable and the rest as regressors. Household income in the Campo has been used as a control variable in order to increase the quality of the results but has no part in the model’s interpretation.

In these predictions we assume that the data estimated for the year 2018 is representative and that it allows us to predict its future values in the ‘t+1’ period, which is taken as the year 2025. According to the different studies carried out so far,20 the initial effects of uncertainty will have dissipated by then and only structural effects will persist. The results are shown in Figure 1.

Figure 1. Predictions by variable under alternative scenarios

Figure 1 shows that predictions point to a negative tendency in every variable that gets worse in the pessimistic scenario. This first result supports the initial hypothesis of this empirical work: the economic effects of Brexit are worse in a scenario where the free movement of production factors is completely restricted.

In any event, the four freedoms (people, services, goods and capital) only take place in the counterfactual because in every other scenario the UK is no longer a Member State of the EU. Therefore, we obtain another result: whatever the Brexit negotiations may be, there will be negative economic effects due to the loss of the four freedoms of the single market, which are beneficial to both economies. The final result will be conditioned by the dynamics of negotiation in the upcoming months, especially in the agreements concerning borders.

Thirdly, the model also verifies another hypothesis. The Campo’s wealth seems to be explained simultaneously by two cumulative effects: cross-border employment and trade. The results show that both of them will be reduced after Brexit and that this will have negative consequences in the Campo’s economy. Figure 1 also shows that the variables linked to cross-border employment (number of cross-border workers and total employment) are more vulnerable to Brexit than those related to trade (imports and Gibraltar’s GDP).

Income per inhabitant in the Campo is the model’s most important variable, as it is the dependent variable in the OLS regression. Thus, its tendency is representative of the individual behaviour of all other variables and a specific analysis of its predicted values becomes significant: a 5% and an 8% fall in the optimistic and pessimistic scenarios respectively. Even if the difference between them may seem small, it can clearly be seen that income is 1.6 times more damaged in the latter.

However, it should also be clarified which of the two effects (employment or trade) has more weight in the total change of income per inhabitant in the two scenarios. All the variables decline in both scenarios, but they differ in each of the effects: while in the ‘employment effect’ the drop is equally distributed between the two variables (cross-border workers and total employment) in the ‘trade effect’ (imports and Gibraltar’s GDP) the change is mainly felt by imports. More specifically, according to the model it is expected that they might drop by 11% in the optimistic and 18% in the pessimistic scenario, whereas the GDP change would remain between 2% and 4%. We can see an additional result here: Brexit’s costs will take place mainly in the exchange of goods and, to a minor extent, in employment levels in the Campo (both cross-border and local).

Finally, these predictions allow us to conclude that Brexit will be detrimental to Gibraltar regardless of the outcome of the negotiations. In the optimistic scenario, Gibraltar would lose 2% of its GDP and, moreover, 11% of its imports from Spain. The latter would be especially harmful for an economy that depends on imports for its survival.

Conclusions

The econometric model presented in this paper allows us to quantify and determine the economic effects of Brexit in the Campo considering the current state of negotiations,21 the contributions of the theory of economic disintegration by Sampson22 and other authors and the specific nature of the interactions between Gibraltar and the Campo.

These interactions explain the wealth generated in the area due to the geographical proximity with Gibraltar through the ‘employment’ and ‘trade’ effects. They both generate positive effects in the economy and complement each other: the sectors where Gibraltar is more dependent in imports are those that employ most cross-border workers.

The mutually beneficial dependence between the two economies allows us to establish clearly that Brexit will be harmful to both parties. There will be increased costs for the mobility of production factors, particularly in imports and also, even if on a smaller scale, in cross-border and local employment.

These negative economic effects will be persistent no matter what the outcome of the present negotiations. However, they will be reduced if effective measures are taken in order to ensure the cross-border mobility of factors. Unilateral proceedings like closing the borders or increasing restrictions will be harmful to both economies. Ancient conflicts must be left behind and innovative solutions are needed to achieve a mutually beneficial solution. This paper shows how costs can rise if the parties fail to reach an agreement.

Luis Galiano Bastarrica
University of Seville, MA European Economic Studies - College of Europe (Bruges)


1 This article is based on a bachelor’s thesis at the University of Seville between January and June 2018. No facts were considered after April 2018 to create the model presented in it. The thesis was supervised by Eva Mª Buitrago Esquinas, Professor of Applied Economics at the University of Seville. This empirical work would have been impossible without her dedication, commitment and support.

3 HM Government of Gibraltar (2015a), ‘Employment survey’.

4 J. Fletcher, Y. Morakabati & K. Male (2015). ‘An economic impact study and analysis of the economies of Gibraltar and the Campo de Gibraltar, update 2015’, The Gibraltar Chamber of Commerce.

5 We do not consider here the economic activity generated by petroleum products.

6 HM Government of Gibraltar (2015b), ‘Abstract of statistics’.

7 HM Government of Gibraltar (2015a), op. cit.

8 Instituto de Estadística de Andalucía (2016), ‘Encuesta de presupuestos familiares’.

9 No disaggregated data were available on Gibraltar’s imports from the Campo.

10 HM Government of Gibraltar (2003), ‘Input-output study of Gibraltar’, (financial products are not considered).

11 E. Buitrago Esquinas & L. Romero Landa (2013), Economía de la Unión Europea, Ed. Pirámide, Madrid.

12 E. Feás (2017), ‘Brexit, Cataluña y la teoría de la desintegración económica’.

13 OECD (2018), ‘Organisation for European Economic Co-operation (OEEC)’.

14 A. Boussie, P. Foley, N. Hill, S. Punhani & G. Zanni (2016), ‘Brexiting the supply chain’.

15 B. Busch & J. Matthes (2016), ‘Brexit – the economic impact: A meta-analysis’, IW Report, 10/2016, p. 1-96.

T. Sampson (2017), ‘Brexit: the economics of international disintegration’, Journal of Economic Perspectives, vol. 31, nr 4, p. 163-184.

17 European Commission (2017), ‘Libro Blanco sobre el futuro de Europa’, Brussels.

18 A. Sentence, J. Hawksworth et al. (2016), ‘Leaving the EU: implications for the UK economy’, PricewaterhouseCoopers LLP, London.

19 I. Enrique Regueira (2009), ‘Estimación municipal del Valor Añadido Bruto en Andalucía’, Documentos de trabajo, nr 1, p. 1-57.

20 Busch & Matthes (2016), op. cit., p. 1-96.

21 Facts were taken into consideration for the empirical work until April 2018.

22 Sampson (2017), op. cit., p. 163-184.

]]>
<![CDATA[ Spain’s 20 years in the euro: a beneficial straitjacket ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/commentary-chislett-spain-20-years-euro-beneficial-straitjacket 2019-01-04T12:15:36Z

We will never know with certainty whether Spain would have been better off not joining the euro. What we know is that in real GDP growth terms Spain has performed better than Germany, France and Italy since 1999.

]]>
Twenty years ago this month Spain was one of the 11 EU countries that started to use the euro when the common currency was first introduced. Joining the euro and being in the vanguard of a European movement, 13 years after Spain entered the European Economic Community (EEC) and ended a long period of isolation from mainstream Europe, was very much a matter of national pride.

Yet has it been worth it? Euro zone membership deprived Spain of its former capacity to set interest rates and devalue its currency. Interest rates are set by the European Central Bank, not by member state central banks, and euro zone countries cannot devalue. The loss of independence in these areas meant that when the Spanish economy entered a long period of recession as of 2008, as part of the meltdown of the North Atlantic financial system and the subsequent Eurozone debt crisis, it could not use some of the most important macroeconomic tools –monetary policy and exchange rates– to restore competitiveness and perhaps emerge from austerity more quickly and less painfully but not necessarily on a sustained basis. The country had to rely on ‘internal devaluation’, cutting production costs, mainly wages, in order to lower unit labour costs and make the economy more international and competitive.

Preparing the country for the euro, which involved a tough wrench, mainly fell to the conservative Popular Party under José María Aznar. When he took office in 1996, Spain met none of the criteria for joining the Economic and Monetary Union (EMU) as of 1999. Inflation, interest rates, the budget deficit and public debt all breached the convergence requirements enshrined in the Maastricht Treaty of 1992 for setting up the euro zone. Many policymakers and pundits thought Spain would never be fit for the purpose.

“The truth is that Spain’s decade-long boom was a false bonanza, as it was mainly propelled by the debt-fuelled property sector”

The Spanish political establishment was determined to prove them wrong. Civil servants agreed to a wage freeze, public spending was reduced, privatisations began on a larger scale than under the Socialists, and various structural measures were taken. By the spring of 1998, Spain had met the conditions: its budget deficit was less than the maximum allowance of 3% of GDP (6.5% in 1995), public debt as a proportion of GDP was on a downward path and inflation was down to 2% from 4.5% in 1995. With it, interest rates fell. The path was also eased by Spain being the largest net recipient of EEC funds.

The macroeconomic stability required for sustained economic growth as a result of meeting the euro criteria ushered in a virtuous circle of high growth, low inflation and job creation. The country’s per capita income increased from 80% of the average of the 15 EU countries in 1996 to 87% in 2004, and thanks to the creation of 1.8 million new jobs the unemployment rate dropped from 23% to 11.5% during this period. The economy was going so well that José Luis Rodríguez Zapatero, the Socialist Prime Minister between 2004 and 2011, adopted a football metaphor and proclaimed in September 2007 that Spain ‘has joined the Champions League’.

“The euro itself cannot be blamed for banks’ reckless and irresponsible lending practices”

The truth is that Spain’s decade-long boom was a false bonanza, as it was mainly propelled by the debt-fuelled property sector (construction’s share of GDP grew from 7.5% of GDP in 2000 to 10.8% in 2006), creating a massive bubble that burst as of 2008. But was that the euro’s fault? While building and consumption in general was spurred by the sharp drop in interest rates after Spain joined the euro –average short- and long-term rates fell from 13.3% and 11.7%, respectively, in 1992, to 3.0% and 2.2% in 1999 and to 2.2% and 3.4% in 2005, encouraging borrowers to go on a spending binge–, the euro itself cannot be blamed for banks’ reckless and irresponsible lending practices, particularly those of the politically-influenced cajas de ahorros (savings banks). The Bank of Spain did not do enough to discourage the orgy of borrowing, but it deserves credit for introducing macroprudential provisions. When several banks, including Bankia, the fourth-largest lender, were on the verge of collapse in 2012, euro membership enabled Spain to avail itself of the zone’s bailout fund, the European Stability Mechanism (ESM), without which the whole financial system might have gone awry.

Nor was the building of ‘ghost’ airports and other white-elephant projects scattered around the country the euro’s fault. Spain wasted more than €81 billion on ‘unnecessary, abandoned, under used or poorly planned infrastructure’ between 1995 and 2016, according to a damning report published by the Association of Spanish Geographers last year. Likewise, the euro is not to blame for Spain’s consistently high unemployment (it reached 24% in 1994, five years before the introduction of the euro, and it has never got below 8% since the euro was adopted). Today, the jobless rate stands at 15%, down from a peak of 27% in 2013.

“Spain suffered far more than Italy during the euro crisis, but it has also reformed more and, as a result, enjoyed a much stronger recovery”

The sharp drop in interest rates and in Spain’s risk premium (the yield spread with the German bond fell from 500bps in 1993 to below 50bps) enabled companies to borrow funds much more cheaply in order to expand abroad. The creation of a bevy of multinationals has been one of the most significant economic developments in Spain over the last 20 years (the stock of outward direct investment rose from US$129 billion in 2000 to US$597 billion in 2017). A stable currency (the peseta was devalued many times) has also been good for attracting inward foreign direct investment (it increased from US$156 billion in 2000 to US$644 billion in 2017) and keep relatively high living standards.

The strong euro did not hinder making Spain’s exports of goods and services more competitive (they rose from 26.4% of GDP in 1999 to around 34% in 2018).

Spain suffered far more than Italy during the euro crisis, but it has also reformed more and, as a result, enjoyed a much stronger recovery. The euro ‘straitjacket’ made Spain reform, to its benefit, while Italy resisted. Unlike Italy, Spain’s economic output has been above its pre-crisis peak since the middle of 2017. Italy’s GDP is still some 5% below its prior peak. There was no shortage of misguided predictions after the Spanish economy crashed that Spain might exit the euro. Whereas the populists in Italy’s government have toyed with leaving the common currency, all of Spain’s main parties support staying in.

Close to two-thirds (62%) of Spaniards believe the euro has been good for Spain, slightly down on a year ago, according to the latest Eurobarometer (see Figure 1). More than 20% of the population was not born when the euro came into force and has not known another currency.

Figure 1. Having the euro is a good or a bad thing for your country? (%) (1)
  A good thing A bad thing Can’t decide Don’t know
Euro area 64 (=) 33 (=) 7 (=) 4
Finland 75 (73) 15 (14) 7 (9) 3
France 59 (64) 29 (25) 6 (5) 6
Germany 70 (76) 21 (16) 7 (5) 2
Netherlands 69 (68) 21 (23) 6 (=) 4
Portugal 64 (60) 24 (26) 7 (10) 5
Italy 57 (45) 30 (40) 11 (12) 2
Spain 62 (65) 27 (23) 6 (=) 5

(1) 2017 figures in brackets.

Source: Eurobarometer, December 2018.

Three-quarters of people in the 19 euro zone countries are in favour of the euro, the highest since 2004. But that does not mean that all is well with the single currency, as even its most fervent advocates acknowledge. Its design flaws include the lack of a banking union (recognised but not fully implemented) and a system for making fiscal policy counter-cyclical. When economies are expanding, they need fiscal discipline and when in recession some freedom to borrow. Another omission is the absence of any means to ensure euro countries adopt structural reforms, which only tends to happen in times of crisis and as a last resort. Governance that is better designed for crisis management is also required.

We will never know with certainty whether Spain would have been better off not joining the euro. What we know is that in real GDP growth terms Spain has performed better than Germany, France and Italy since 1999. Were Spain to leave the single currency today and return to the peseta, the move would have huge repercussions, including skyrocketing interest rates and a currency devaluation.

William Chislett
Associate Analyst, Elcano Royal Institute
 | @WilliamChislet3

]]>
<![CDATA[ Spain no longer bucks the trend on far-right parties ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/commentary-chislett-spain-no-longer-bucks-trend-on-far-right-parties 2018-12-11T01:25:51Z

The recent snap election in Andalucía saw the far-right party Vox storm into the regional parliament with 12 of the 109 seats, and so end Spain’s exceptionalism.

]]>
The recent snap election in Andalucía saw the far-right party Vox storm into the regional parliament with 12 of the 109 seats, and so end Spain’s exceptionalism.

Until then Spain, to the surprise of many, had bucked the nationalist surge that has swept across the EU, with, for example, France’s anti-immigrant and anti-system National Rally and Germany’s AfD, despite having, in the view of analysts, the conditions for such a party including very high unemployment and a large foreign community. The anomaly is viewed as a legacy of the 39-year right-wing dictatorship of General Franco, who died in 1975.

France’s far-right leader Marine Le Pen was quick to tweet (in French): ‘Strong and warm congratulations to my friends from Vox, who scored a meaningful result for such a young and dynamic movement’. Steve Bannon, Donald Trump’s former chief strategist at the White House, offered technology services before the Andalusian campaign to help Vox put across its message in social media, but they were apparently not taken up.

“Yet there are clear grounds for believing that Vox is here to stay”.

Whether Vox’s victory –395,978 votes (11.9% of the total) as against just 18,422 (0.46%) in the 2015 Andalusian election– will see it going from strength to strength in next May’s municipal, regional and European elections and a general election if one is called ahead of the due date of July 2020 remains to be seen. Yet there are clear grounds for believing that Vox is here to stay. It won a mere 47,182 votes (0.2% of the total) in the 2016 general election.

Vox’s first success was largely at the expense of the conservative Popular Party (PP), which lost 316,409 votes and seven of its 33 seats, and to a much lesser extent the Socialists (402,035 and 14 of its 47 seats, respectively). The latter’s voters mainly switched to the liberal Ciudadanos (C’s, which won 21 seats, 12 more) and to some extent the leftist coalition Adelante Andalucía (AA) whose main component is the far-left populist Podemos and which until Vox was the main recipient of anti-establishment votes. The voter turnout of 58.6% was the lowest since 1990.

The Socialists won the most seats (33) of all the parties but it was their worst performance ever in their stronghold, which they have ruled for 36 years. AA’s 17 seats are not enough for the Socialists to carry on governing the region, and the PP (26 seats) will need the 17 seats of C’s and Vox’s 12 to form a very narrow majority government or a minority one with parliamentary support from Vox.

That the political earthquake caused by Vox, created five years ago by Santiago Abascal, a former PP politician, should happen in the leftist stronghold of Andalucía, which provides 20 of the Socialists’ 84 seats in the national parliament, surprised many (polls forecast a maximum of four seats). Yet there are fundamental factors why it happened in Spain’s largest region (population 8.4 million). As well as the fatigue with having been ruled by the same party for so long and the corruption scandals that have engulfed the Socialists, Andalucía has an unemployment rate of 23% (8 pp above the national average) and a very large immigrant community, particularly from non-EU countries.

This is particularly the case in the province of Almeria where 18.5% of the 700,000 population is foreign, mainly Moroccans and Sub-Saharans, well above the 10% for Spain as a whole. Eight of the 10 municipalities with the largest growth in votes for Vox were in Almeria, and in all of them more than 20% of votes went to Vox (30% in the case of one of them).

Non-EU foreigners tend to be employed in the sectors that Spaniards do not want to work in, particularly agriculture (sweating under a ‘sea’ of plastic greenhouses in areas like El Ejido) and are perceived as a drain on healthcare and education, although they are in fact net contributors to social security. They are also viewed as a threat to Spanish identity, even though many of them have been there for years.

The surge in illegal immigration this year will also have fed into people’s fears of the ‘other’. In the first nine months, there were 7,120 illegal crossings of Moroccans to Spain via the Western Mediterranean (see Figure 1).

Figure 1. Illegal entry of Moroccans via the Western Mediterranean, 009-18 (1)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
254 300 776 365 282 468 631 722 4,704 7,120

Note: the figures refer to the number of crossings not the number of people in them. Some people might have crossed more than once.
(1) First nine months of 2018.
Source: Frontex.

Spanish society has changed profoundly since Franco died and the country successfully moved to democracy. The country is no longer ethnically homogeneous: the number of registered foreigners has risen from 165,000 to 4.7 million, excluding the more than 700,000 naturalised Spaniards. Not all the change has been to the liking of conservatives, particularly personal-freedom issues such as the legislation of abortion and gay marriages (the latter in 2005). In addition, there is no longer a stigma about voting for the far right as there was in the first post-Franco years.

The election in Andalucía was the first since the one in Catalonia at the end of 2017, which saw those parties in favour of unilaterally creating an independent republic holding onto their narrow majority in the Catalan parliament. That election was followed in June of this year by the unseating of the PP national government, following a censure motion in parliament won by an unholy alliance of the Socialists, Basque nationalists and Catalan secessionists.

The right has not forgiven the Socialists, with only 84 of the national parliament’s 350 seats, for attaining power by this means thanks, in part, to Catalan parties who want to break up Spain. Prime Minister Pedro Sánchez is regularly attacked by the right for not being firm enough with the secessionists.

“The question now is whether Vox’s success is a flash in the pan or the start of something more significant”.

The Andalusian election was an opportunity to punish the Socialists and not just for local reasons, and also the PP, which has never won enough votes in the region to make a difference. Vox’s votes have achieved change, although its shape has yet to be determined.

The question now is whether Vox’s success is a flash in the pan or the start of something more significant. The evidence shows that once a party is installed in a parliament, be it regional or national, support for it tends to grow. This has been the case of Ciudadanos, which began life in Catalonia in 2005 against the burgeoning independence movement and after gaining three seats in the Catalan parliament in the region’s 2006 election moved out of its territory and won nine seats in the 2015 Andalusian election (21 in the latest election). This was then followed by winning 40 seats in the national parliament in the 2015 general election.

Moreover, in the case of ‘stigmatised’ parties, such as those on the far right, winning parliamentary representation makes them more respectable and hence an option for voters. Fourteen European countries have far-right parties in their parliaments (see Figure 2).

Figure 2. Rise of nationalism in Europe: % of votes won by nationalist party in most recent national elections
Country Name of party and % of votes
Austria Freedom Party (26%)
Bulgaria United Patriots (9%)
Cyprus ELAM (3.7%)
Czech Republic Freedom and Direct Democracy (11%)
Denmark Danish People’s Party (21%)
Finland The Finns (18%
France National Rally (13%)
Germany Alternative for Germany (12.6%)
Greece Golden Dawn (7%)
Hungary Jobbik (19%)
Italy The League (17.4%)
Netherlands Freedom Party (13%)
Slovakia Our Slovakia (8%)
Switzerland Swiss People’s Party (29%)

Last updated: September 2018.
Prepared by the BBC.

Since 2015, when the mould of Spain’s essentially two-party system was broken by Podemos and Ciudadanos, political life has become fragmented and parliament gridlocked. Vox could well intensify that fragmentation by adding a fifth party.

William Chislett
Associate Analyst, Elcano Royal Institute
| @WilliamChislet3

]]>
<![CDATA[ Forty years of democratic Spain: Political, economic, foreign policy and social change, 1978-2018 ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/wp1-2018-chislett-forty-years-democratic-spain 2018-10-17T02:19:44Z

Over the past 40 years, Spain has achieved conditions that are similar –in some cases better– than in the rest of Western European nations, disproving the theory, still beloved in some quarters, of the country’s ‘exceptional nature’ or ‘anomaly’.

]]>
Summary

Whichever way one looks at it, Spain has been profoundly transformed since the 1978 democratic Constitution that sealed the end of the 1939-75 dictatorship of General Francisco Franco, the victor of the three-year Civil War. Be it economically with, for example, the creation of significant number of multinationals or the world’s second-largest tourism industry in terms of visitors (81.8 million in 2017), politically with a vibrant democracy that ranks high in classifications, socially with the greatly improved status of women or in foreign policy –where Spain has reclaimed its place on the international stage–, the country bears no resemblance to what it was like 40 years ago. Over the period, per capita income at purchasing power parity increased fivefold and life expectancy at birth rose by almost 10 years. All the more remarkable is that the transition, guided by King Juan Carlos I, was achieved in the face of considerable adversity. It was not guaranteed from the outset to be successful: the Basque terrorist group ETA killed an average of 50 people a year in the first decade of democracy (and mounted assassination attempts in 1995 on both the King and the Prime Minister, José María Aznar), and Francoist officers staged a coup in 1981 in an attempt to turn back the clock. The economy, which was entering a period of recession, galloping inflation and rising unemployment, was also subjected to unprecedented competition after decades of protectionism. In the first three months of 1976 there were 17,731 cases of industrial action alone. Today’s problems, such as the very high jobless rate, particularly among young adults, acute income inequality, increased social exclusion, the illegal push for independence in Catalonia and corruption in the political class do not detract from the fact that Spain has enjoyed an unprecedented period of prosperity and stability over the past 40 years. Spain has achieved conditions that are similar –in some cases better– than in the rest of Western European nations, disproving the theory, still beloved in some quarters, of the country’s ‘exceptional nature’ or ‘anomaly’.

William Chislett
Associate Analyst, Elcano Royal Institute
 | @WilliamChislet3


I would like to thank the following for helping with this report: Joaquín Almunia, Alicia Coronil, Alain Cuenca, Sir John Elliott, Omar Encarnación, Ángel de la Fuente, Josep Giménez Miralles, Esperanza Gutiérrez Gómez, Professor Harold James, Jordi Maluquer de Motes, Valeriano Muñoz, Antonio Muñoz Molina, Rafael Pardo, Inés Pérez-Durantez, Michael Reid, Ignacio Sánchez Amor, Oriol Sabaté and Friedrich Schneider.

]]>
<![CDATA[ Technological cooperation between Spain and China ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari108-2018-ortega-technological-cooperation-spain-china 2018-09-24T06:28:57Z

Technological cooperation has become a basic component of bilateral relations between Spain and China. Today China is a technological power of the first order. Bilateral relations in this field should be strengthened, but they need specific complementary and reciprocal measures.

]]>
Original version in Spanish: Cooperación tecnológica entre España y China

Theme

Technological cooperation has become a basic component of bilateral relations between Spain and China. Today China is a technological power of the first order. Bilateral relations in this field should be strengthened, but they need specific complementary and reciprocal measures.

Summary

Scientific and technological cooperation between Spain and China has significant potential to be developed for the benefit of both countries. However, such cooperation would need to be based upon the notions of complementarity and reciprocity. It would also require that Spain develop a specific strategy within its broader approach to technology. While Spain must act within the European framework for such relations, it also should deepen further its own existing institutional framework, building upon the recent creation of the Ministry for Science, Innovation and Universities. There are also important opportunities for Spanish companies in China (especially in the interior) and for Chinese companies in Spain. Together these two countries should develop a Strategy for Scientific and Technological Cooperation between Spain and China (like that which China continues to develop with Germany and with the UK). More scientific research exchanges should be fostered between the two countries. The Spanish Embassy in Beijing should be staffed with a science attaché and the Centre for Industrial Technological Development (CDTI) should expand and strengthen its representation in China.

Analysis

Introduction

Technology has become a basic key to bilateral economic and cultural relations between China and Spain. Although these economies are very different in terms of size and priorities, the two countries have common and interlocking interests that bode well for productive and mutually-beneficial cooperation. But technological cooperation is still marked by a level of investment reciprocity far below that of other countries in Spain’s neighbourhood, like the UK, Germany and France.1

In just a few years, China has become a technological power of the first order, both in quantitative and qualitative terms. The International Monetary Fund (IMF) estimates that China will have surpassed the US in R&D spending by 2026. China has more than 5 million people dedicated to R&D and the country produces more than 1.6 million Science and Technology degrees every year.2 China is now number two in the international ranking for citations of scientific articles, behind only the US. Today it no longer makes sense to pose the question once constantly asked by analysts just a few years ago: why does China not innovate?3 Well, now China clearly does. Today China is shaping the technological future of the planet in terms of both products and users.

China now boasts some of the giants of the new digital economy, including Baidu, Alibaba, Tencent and JD.com. Such companies, already important manufacturers of a diverse range of products, are now becoming global. China is also now the country which in absolute terms is installing the most industrial robots. Furthermore, by October 2017, China had produced 17 ‘unicorns’ (private technology companies worth US$1 billion or more), only two less than the 19 from the US (out of a world total of 46). Today, however, China has 56 such ‘unicorns’ (while it had only eight in 2014), according to the World Economic Forum. When President Xi Jinping said that ‘the international status of China as the largest developing country has changed’, he was only describing a part of the reality. China constitutes many different economies at the same time. And in this field, China should be treated as a technological power –which is what it is– pursuing its interests for a more equitable development of its economy and society.

For example, China has surpassed the US on the landmark issue of investment in Artificial Intelligence (AI). It trails the US in patents in this terrain, but it is catching up rapidly. In July 2017, China published a national strategy for new generation AI. The objective of this plan is for China to be the leading global power in AI innovation by 2030. To achieve this objective, China’s strategy includes improvements in the areas in which the country plans to deepen its human capital, focusing on education and the recruitment of AI talent.4

China also continues to push forward in significant ways in synthetic and genome biology, two other promising fields where research can proceed uninhibited by restrictive national legislation. The Beijing Genomics Institute (BGI) is the largest genetic research centre in the world, and it belongs to a Chinese company.

For its part, Spain is an advanced economy with some strong technological sectors and state-of-the-art research centres that could be of interest to China; but they continue to be hampered by insufficient R&D investment. Expenditure fell during the years of the economic crisis, and only with the recovery has it begun to rebound (although at a pace below the average rate of economic growth). Investment in research, development and innovation is now 1.19% of GDP, compared with 1.4% in 2010 and an EU average of 2%.5 In 2016 and 2017 the private sector increased its investment in R&D by 3%. This is good news, although public R&D spending fell by 3%. In total, R&D spending was only €3.26 billion in 2016. That year, 205,873 people worked in R&D in Spain (of which 126,633 were researchers),6 and Spain had only four ‘unicorns’.

However, unlike China –and despite having its own State Plan for Scientific and Technical Research and Innovation for 2017-2020– Spain has failed to design a strategy which prioritises technology sectors (even in a general sense and not just with respect to China). Spain must define a technological strategy as a country. The establishment once again, in June 2018, of a Ministry for Science, Innovation and Universities points that way. However, while this addresses the knowledge triangle with targets, it also requires budgetary funding. A catalogue of technological capacities of Spanish companies could also be prepared by the government, along the lines of the commercial strategy which has pushed the ‘Spain brand’ (Marca España).

Chinese objectives

China has clear strategic objectives for its technological cooperation: to progress, to gain knowledge and to eliminate its technological dependence on other countries. Often it does this by acquiring technologies through partnerships with foreign technology companies or, alternatively, through the acquisition of foreign companies.

China is following a plan. In 2017 the total implementation of the reform of China’s Science and Innovation System reached its culmination. The reform was organised in five categories: (1) Natural Science funds; (2) large national Science and Technology (S&T) projects; (3) key national plans for R&D, both in basic and applied research; (4) a technological innovation fund; and (5) a fund for basic science and technology and special talents.

The 13th Five-Year Plan for S&T (2016-20), now in force, points to opportunities for foreign companies in advanced manufacturing technologies, the Internet-of-Things, agricultural machinery and seeds, green technologies and smart-cities.

China frames all of this within its Made in China 2025 industrial strategy that focuses primarily on 10 sectors: new information technologies, robotics and high-quality digitally-controlled machinery, aerospace equipment, marine engineering equipment and high-quality ships and also railway transport, automobiles with new energy-saving and new energy technologies, electrical equipment, agricultural machinery, new materials, and biomedicine and high-quality medical equipment.

Complementarity, reciprocity and opportunities

Chinese technological power suggests that reciprocity and balance should be sought as soon as possible when cooperating with China. European companies and institutions have very limited access to Chinese R&D and face growing problems in contracting Chinese researchers on the ground –another sign of the imbalance in the relationship–. Furthermore, there are some high technology sectors –like the manufacture of solar panels– in which Spain and China are competitors.

China also has a series of ‘prohibited sectors’ which are cordoned off from foreign penetration and imply a serious limitation. The ‘black list of industries’, however, has shrunk in size, from 36 sectors in 2015 to 18 in 2017, and is also increasingly less technological. Nevertheless, foreign activities are still limited in information services, Internet and investment in research centres devoted to the humanities and social sciences.7

There are other ‘restricted’ sectors that limit the percentage of shares that foreign entities may own in particularly companies and require upfront approval from the Commerce Ministry for any such investment. China continues to reduce the number of both its prohibited and restricted sectors.

At the same time, there could be even more opportunities for Spanish companies in the regulated sectors –which the Chinese government considers of special importance– in the form of tax incentives and higher operational autonomy. These are the ‘encouraged’ sectors that the Chinese government wants to see attract more foreign investment. They embrace various technologies, including: intelligent emergency medical rescue equipment; the production of hydrological monitoring sensors; the research, development and manufacture of virtual and augmented reality equipment; the design and manufacture of 3D printers; and the construction and operation of hydrogenation stations.

China also has a number of free-trade zones. The latest ‘black list’ applying to the free trade zones (from June 2017) reduced restrictions in more than 20 industries, including railway transport equipment, pharmaceutical products, road transport, insurance, accounting and auditing, and other commercial services.8

In June 2017 China’s National Commission for Development and Reform and its Ministry of Commerce (MOFCOM) published a new version of the Catalogue for Investment Orientation for Foreign Investment. The foreign investment restrictions on industries which were either loosened or eliminated in the new Catalogue include railway transport equipment, motorcycles, new-energy vehicle batteries, civilian satellites, unconventional oil and gas production, and credit research and rating services. A few high-tech industries, like virtual and augmented reality equipment, have also received special incentives to encourage foreign investment. But many key industries like banking, health and telecommunications continue to be highly restricted to foreign investment.9

A central key for technological cooperation between Chinese and Spanish institutions and companies is the possibility for complementarity in advanced sectors, or sectors in which such cooperation has especially large potential. For instance, in certain sectors the Spanish side might be stronger in one area, while the Chinese side –in a complementary manner– might be superior in some other way. Spanish companies enjoy a strong reputation as ‘integrators’ of diverse technologies, even though they do not always produce them themselves. Green technologies, ecological automobiles, smart cities, the health sector, food and agriculture are all central in China’s Five-Year Plan. Mention should also be made of civilian space infrastructure, new generation information networks, integrated circuits, new materials, biomedicine, aviation engines, gas turbines and defence R&D.

Among the sectors in which China stands out, and in which Spain is also advanced, are 5G mobile communications, crucial for the Internet-of-Things and self-driving vehicles. Others include modern agriculture and food processing, green energies, biotechnology, biomedicine, nanotechnology and new materials (like graphene), pharmaceuticals, smart cities, the aerospace industry and 4.0 industries. And in basic sciences, there is the possible development of a wider network of astronomical observatories.

In all these areas, Spain has many interesting and attractive assets to contribute and a strong interest in cooperation in the face of future competition from increasingly capable Chinese companies. Technological cooperation is a very good tool for the two countries to get to know each other better, and an opportunity for companies from both sides to help each other gain access to the global market. Many Spanish technology companies are present in China, but not as much as other European tech companies.

There should also be complementarity in public-private actions.

The European framework

Spain-China technological cooperation is part of the general framework of EU-China cooperation, because that is its frame of reference, which is now being redesigned for all Europeans and because they are complementary.

Since 1988 Europe and China have cooperated in this area in accordance with an Agreement on Science and Technology which is renewable every five years. Cooperation is co-directed by the UE’s Directorate for Research and Technology (RTD) and China’s Ministry of Science and Technology through annual meetings.

The EU-China 2020 Strategic Agenda for Cooperation, adopted in November 2013, covers cooperation in science and technology.10 The Agenda was renewed in 2017 with an emphasis on innovation, cross-border transfer of R&D results and reciprocity in access to research (as the EU has insisted since 2016). The Agenda has stimulated initiatives in energy, aerospace, urbanisation, biodiversity and social issues.11 In addition, almost all the Member States of the EU have bilateral agreements with China. It should also be noted that while trade is an exclusive competence of the EU, investment is not.

Within the Strategic Agenda and the Horizon 2020 programme, the European Commission expects to continue devoting around €100 million a year to European entities involved in H2020 projects with Chinese participants, while China expects to spend ¥200 million (around €25 million) a year on Chinese entities. The priorities targeted by the funding include sectors like food, agriculture, biotechnology, ecological transport, energy and health.

Some European projects –such as the manufacture of Airbus planes in China at centres in Beijing, Tianjin and Harbin– directly favour Spain because they incorporate Spanish technologies in many ways. In this respect, Spain-China cooperation is complementary with Europe-China cooperation. H2020 is focused on intermediate technology levels of interest to Spanish companies. Furthermore, the EU has additional mechanisms that could also prove of great interest to Spanish firms, especially small and mid-sized companies. One of these is the IPR Help Desk, which offers free advisory services for small and mid-sized companies on issues related to intellectual property rights (IPR) and patents; another is ENRICH, a new European centre for the promotion of technological cooperation.

There is also a Europe-China ‘connectivity platform’ embedded within the Chinese initiative of the New Silk Road, also known as ‘One Belt, One Road’. So far, the platform has had a fund for small and mid-sized enterprises, financed by the European Investment Bank and the ‘One Belt, One Road’ initiative fund. This enormous project offers a wide range of possibilities in the technology sector, especially activities related to efficient resource distribution, connectivity and market integration.

Despite the framework being European, there is much competition in Europe for cooperation with China between companies and between Member States, particularly Germany, France and the countries of Central and Eastern Europe with which Beijing seeks to have a special relationship.

Nevertheless, a combination of obstacles faces Europe in its pursuit of cooperation with China. These include the asymmetry produced by China’s relatively closed economy and Europe’s relatively open one, differences in the protection of intellectual property, the growing Chinese demand that foreign investment be accompanied by the transfer of technologies from the investing companies, the general difficulties faced by foreign investment in China and a massive Chinese plan for the acquisition of civil and military technology abroad.

As the European Council for Foreign Relations pointed out in the study mentioned above, ‘The demand of the Europeans for reciprocity has become a key issue frequently inserted into their declarations on China. But it has become increasingly clear that the European Union should also design policies appropriate for an epoch in which China might reject reciprocity’. Some go further in their projections. The geopolitical consultancy Eurasia highlights the risks of a Global Tech Cold War and a ‘Global Cold War for Technological Supremacy’, in which the major powers appropriate the ground-breaking scientific and technological discoveries and seek to dominate the markets.12

In light of this situation, protectionism is growing in Europe (as well as in the US) in the face of increasing Chinese investment in sectors considered to be strategic. The feeling is greatest in France, Germany and Italy (with a certain amount of support in Spain, compared with the opposition of the Nordic countries). One option is to establish an agency to regulate investment at the European level, like the Committee on Foreign Investment in the United States (CFIUS). Spain supports such an initiative as long as the final decision authorising investment projects remains in the hands of the Member States.

To prevent the acquisition by China of companies with high technological value (as occurred in 2017 with Kuka, the German robot manufacturer), the European Commission proposed to the Council and the European Parliament in October 2017 a screening system for all investments that might affect the interests of the Union, especially those with security implications or whose technologies have been subsidised. The proposal, along Chinese lines, also creates a list of critical technological sectors for the industries of the future, including in the military realm. The Member States would have to inform the European Commission of their own screening processes, although some still lack such procedures. The entire system could make technological cooperation between China and the countries of the EU more difficult, particularly if it is undertaken primarily through the acquisition of companies.

Spain has its own mechanisms that allows it to suspend the principle of investment freedom, in line with the assumptions also held by the Commission.13 Therefore, such a new European system would not distort Spain’s own vision, or the defence of its interests.

The Spain-Latin America-China Technological Triangle

Europe is not everything. Spain is intimately linked to Latin America, and in the technological realm as well. Technology –particularly the digital dimension– will be very present at the next Ibero-American Summit in November 2018, as well as at other regional and international meetings. Latin America must truly enter the Fourth Industrial Revolution; this is one of the big topics that the Argentine Presidency of the G20 in 2018 wishes to address. China is also very present in the region, through investment and trade. Although this is especially the case with respect to raw-material extraction, China is also interested in the technology question in Latin America. For this reason, Spain’s focus on the region should also consider China and its technological contributions so that experiences in technological cooperation between Spanish, Chinese and Latin American companies and research centres might crystallise. There is a technological relationship between Spain and Latin America, another between Latin America and China and, finally, another between China and Spain. Triangulation in this area could be interesting and could strengthen all three vectors of cooperation. For triangulation to be acceptable to both Latin Americans and the Chinese, however, it should be designed as a process of exchange between companies and/or research centres and not as an inter-governmental strategy.

The institutional framework

The institutional framework for technological cooperation between Spain and China is relatively well-developed, although it should be deepened and improved. Nevertheless, China has a Strategy for Scientific and Technological Cooperation with Germany and another with the UK, but it has not developed such an instrument for its relations with Spain. The creation of the Ministry for Science, Innovation and Universities might be able to stimulate the development of such a strategy. In 2013 the two countries signed an agreement for cooperation in R&D+I but there is still no effective bilateral mechanism for the two governments to promote it.

Currently cooperation is largely undertaken by the Spanish CDTI and by the Chinese Torch Centre (High Tech Industry Development Centre), which has been gradually developed over the years. The CDTI is a public business entity –currently part of the Ministry for Science, Innovation and Universities (and previously the Ministry of Economy, Industry and Competitiveness)– that promotes innovation and technological development by Spanish companies. Given the stakes involved, the CDTI still has an insufficient presence in China: the Centre has only one delegate and an assistant in Shanghai. Bilateral technological cooperation would certainly gain from a stronger CDTI presence in China.

Torch –China’s counterpart to the CDTI– is a public entity under the Ministry of Science and Technology, focused on the commercialisation of R&D products, the industrialisation of technological products and the internationalisation of China’s technology industry.

Among the instruments available for achieving its objectives, the Torch programme has the High Technology Zones, Technology Business Incubators (TBIs), the so-called ‘landing parks’ for technology initiatives, project financing and tax incentives. A 15% reduction in corporate tax on high-tech and new technology companies is foreseen, along with deductions of up to 150% on eligible spending on new product, process or technical development. Eligible companies must be based in China and develop their activities in the priority sectors mentioned above.

The CDTI and Torch signed an MOU in 2002 and the former opened an office in Shanghai. In 2006 the bilateral Chineka programme was launched to support the joint development of technological innovation projects between Spanish and Chinese companies (with the participation of at least one from each country). Such projects are intended to develop innovative and market-oriented products, processes and services. For a project to obtain the Chineka stamp of recognition implies a quality and international endorsement from both the CDTI and Torch. Once the Chineka stamp has been awarded, the Spanish counterpart can request finance from the Ministry’s PID fund (soft loans of up to 75% of the total, and up to 33% of the non-refundable component) or Innoglobal (based on subsidies).

There are also other important organs within the Chinese Science and Technology system, such as the Ministry of Industry and Information Technologies (which undertakes China’s industrial planning, policies and regulation), the Ministry of Education (which is responsible for many of the human resources in Science and Technology) and the China Academy of Sciences (made up of 124 institutions, including 104 research centres and two universities), which since 2016 has a new MOU with the Higher Centre for Scientific Research (the Spanish CSIC) for exchange of researchers, the development of joint research and the training of doctoral and postdoctoral students (substituting the previous MOU of 1988).

At the same time, high-technology industrial parks –with incubators, finance instruments and tax incentives– have become more important as they offer further new opportunities. In the opposite direction, the China-Belgium Technological Park has also been inaugurated and is now considered the ‘first Chinese incubator in Europe’, even though the experiment is not yet yielding the expected results. Another Chinese incubator could be proposed for Spain after a study of the problems encountered by the first attempt.

To strengthen the whole of Spain institutionally, it would also be good for the Autonomous Communities to coordinate both among themselves and with the Central Administration –through the CDTI– to undertake technological cooperation with China. Each Community currently operates on its own. Some of them have their own agencies (similar to the CDTI). For instance, in Catalonia the role is taken up by the Agència per la Competitivitat de l’Empresa (Acció, the Agency for Business Competitiveness). In the Basque Country the equivalent is Tecnalia, which has a high-quality technology centre and relationships with certain Chinese institutions such as the Chinese Association of Automobile Manufacturers (CAAM). But Spain’s image would benefit internationally, and in China, if it had a coordinated network of technology centres.

Geography

The most interesting areas for technological industrial activities are in eastern China and especially in the most developed cities, like Shanghai, Beijing, Shenzhen and Tianjin. But the areas that are of highest interest for China in this regard are cities inland towards the west of the country, like Chengdu and Chongquing, and in the north-east in places like Shenyang and Harbin, where the government wants to promote further development and growth. The government has also designated special zones for such purposes in which even more opportunities could emerge.

In Spain there is a certain amount of competition, not only between companies, but also between cities, Autonomous Communities and the government itself to attract Chinese technology and to offer Spanish technology to China. It would be highly convenient to coordinate these processes because, in its absence, their potential to be a positive factor of strength could easily become a weakness in the face of much more centralised decision-making on the part of China.

Finally, there is the question of language. Much Spanish-Chinese cooperation is conducted in English, and Spanish companies are still behind in language skills. With the newer generations, however, the gap is rapidly being eliminated. Nevertheless, there is still a need for interaction in Chinese.

It should not be forgotten that the knowledge of foreign cultures possessed by both Spain and China has a heavy influence on technological cooperation (just as it does for all types of economic cooperation) since it influences personal relationships and builds trust. On the other hand, there is still a relative lack of mutual knowledge, in this case between Spain and China, and particularly in the field of technology.

Research and researchers

Scientific and technological cooperation between Spain and China also requires a greater exchange of researchers. There is still much ground to cover, especially with respect to Chinese students and researchers in Spain. Although the number of Chinese students has increased to more than 8,000 in 2016, most come to Spain to study Spanish, just as, in the other direction, most students from Spain in China study Chinese. More campaigns should be undertaken in China to make known the wide possibilities available in Spain. In general, Spain remains off the map for the Chinese scientific elite when considering an attractive place in which to engage in research. On the other hand, the perception in Spain of the possibilities for research in China, or of the quality of its human capital, is also insufficient.

In the field of Science and Technology (excluding the social sciences), the Higher Council of Scientific Research (CSIC) –including both its central headquarters and its various dependent organisations in the Autonomous Communities– has 13 agreements –and other accords, some of which have been mentioned, like MOUs (Memorandums of Understanding)– with Chinese institutions, including the Academy of Sciences, the Centre for Mathematical Sciences at the University of Tsinghua and the Hong Kong University of Science and Technology, to mention just a few examples. Three of the projects cover a broad range of technological materials (mercury and catalysis, titanium and the geometry of tailor-made equations and string theory), but much more activity could be undertaken by the CSIC if it had the requisite funding.

The number of scientific projects undertaken between Spain and China has increased from less than 300 to more than 1,500 in 2015 according to data from the Spanish Foundation for Science and Technology.14 In this respect, China has risen from number 30 to number 17 during these years in terms of scientific cooperation with Spain.

To cooperate often means to co-finance projects, joint notifications, pre- and postdoctoral scholarships, short visits by senior researchers, exchanges of technical personnel, etc. China is very open to this type of cooperation and has agreements with many European countries and with the EU. But Spain does not seem to be in a position to bear its part of the cost of such exchanges. Nevertheless, China should be an absolute priority and the required resources should be assigned to it if Spain is not to fall far behind. The Max Planck Institute (Germany), the CNRS (France), the Welcome Trust (UK), the Newton Fund (UK) and the Royal Society (UK), along with the Howard Hughes and McGovern Institutes (US) are all financing researchers, laboratories, centres and projects that are clearly attempts to position themselves in China.

Since 2017 there is a Spanish Scientific Network in China with approximately 50 researchers –half from the hard sciences (and half of these biologists) and the other half from the social sciences and humanities–. The presence of Chinese researchers in Spain is much more limited. The administration does not have reliable data in this respect. However, in some important universities and research centres in the US more than 20% of the researchers are Chinese. So there is ample scope for the further development of possibilities and for greater contact between Spanish researchers in China and Chinese researchers in Spain.

The Spanish Foundation for Science and Technology (FECYT) –under the Secretary of State for R&D+I (SEIDI) of the Ministry of Economy, Industry and Competitiveness– publishes a catalogue of opportunities for all foreign students (including the Chinese). But there has been no specific action directed at China thus far.

Spain could take further advantage of the European EURAXESS Initiative (financed by the European Commission) to promote scientific relations between Europe and China, and to attract talent to the Union. Within this initiative, there is a special Spain section with much information for foreign researchers on Spain.

A science attaché for the Spanish Embassy in China should also be assigned to Beijing or Shanghai. At the least there should be a coordinator such as those that are currently present in Washington, London and Berlin.

Conclusions

  • Technological cooperation between Spain and China is a key to re-launching the entire bilateral relationship.
  • It is an asymmetrical relationship, given the respective sizes of the two countries and their respective levels of R&D spending in absolute terms. But a mutually beneficial relationship can be developed between Spain and China.
  • There are significant opportunities in China for Spanish companies and in Spain for their Chinese counterparts.
  • Most of these opportunities are in inland China (given the development interests of the Chinese government) and in a number of non-prohibited sectors.
  • Technological cooperation between Spain and China and between the EU and China should be complementary.
  • Given the lack of reciprocity in this field between Spain and China, along with European fears that Chinese acquisitions will lead to Chinese control of European critical technology, the EU is preparing protectionist measures that will restrict the scope of cooperation.
  • The institutional framework, particularly CDTI and Torch, works relatively well but could be reinforced and given a boost.
  • A Strategy for Scientific and Technological Cooperation between Spain and China should be developed, along the lines of the strategies that China already has with Germany and the UK.
  • The CDTI should broaden and deepen its presence in China.
  • Coordination between the Autonomous Communities and the central administration should be established for cooperation through the CDTI.
  • More exchange of researchers between Spain and China should be promoted, and a scientific coordinator should be posted to the Spanish Embassy in Beijing.
  • It would also be important to propose triangular technological cooperation between companies and research centres from Spain, Latin America and China.15

Andrés Ortega
Senior Research Fellow, Elcano Royal Institute
 | @andresortegak


1 Mario Esteban & Miguel Otero-Iglesias (2018), ‘Chinese investment in Spain: open for business, but not at any price’, ARI 14/2018, Elcano Royal Institute, 6/II/2018.

2 Data from 2017.

3 Regina M. Abrami, William C. Kirby & F. Warren McFarlan (2014), ‘Why China cannot innovate’, Harvard Business Review, March.

4 Paul Scharre (2017), ‘China’s Pursuit of Emerging and Exponential Technologies’, testimony before the House Armed Services Committee, Center for a New American Century

5 Fundación Alternativas (2018), 1, Madrid.

6 Informe Cotec (2018).

7 The comparative list has been provided by the European Chamber in China.

10 European External Action Service, “EU-China 2020 Strategic Agenda for Cooperation”.

11 François Godement & Abigaël Vasselier (2017), China at the Gates: A New Power Audit of EU-China Relations, ECFR, London. We also draw on other data and analysis from this report.

12 Ian Bremmer & Kliff Kupchan (2018), Top Risks 2018, Eurasia Group.

13 Mario Esteban (2018), ‘¿Deben limitarse las inversiones chinas en Europa?’, Comentario Elcano 17/2018, Elcano Royal Institute, 22/II/2018.

15 I am grateful for information and comments from Carlos Quintana, CDTI Delegate in China, and particularly for his presentation: China and Taiwan, Madrid, 19 December 2017; and for the information provided by Alicia Mas Martínez, CDTI representative in China. I additionally appreciate the exchange of analyses with Ángeles Valbuena Puente, manager of the CDTI’s Asia-Pacific R&D Programme, and also the data and points of view contributed by José Pastor, researcher in Life Sciences at the University of Tsinghua and coordinator of the Spanish Scientific Network in China. The Spanish Foundation for Science and Technology (FECYT), of the Secretariat of State for R&D+i (SEIDI), the Ministerial Cabinet of the Ministry for Science, Innovation and Universities, and the International Department of the CSIC also provided me with valuable information.

]]>
<![CDATA[ Spain-US relations and the transatlantic relationship ]]> http://www.realinstitutoelcano.org/wps/portal/rielcano_en/contenido?WCM_GLOBAL_CONTEXT=/elcano/elcano_in/zonas_in/ari98-2018-tovar-spain-us-relations-and-transatlantic-relationship 2018-08-13T01:14:15Z

The recent visit of Felipe VI to Washington provides an opportunity to analyse and reflect on the state of bilateral relations. In the short term, these relations will be framed by the arrival of a new government in Spain and by the increasing distance between President Trump and the European allies.

]]>
Original version in Spanish: Las relaciones España-EEUU en el marco de la relación transatlántica.

Theme

The recent visit of Felipe VI to Washington provides an opportunity to analyse and reflect on the state of bilateral relations. In the short term, these relations will be framed by the arrival of a new government in Spain and by the increasing distance between President Trump and the European allies.

Summary

The first visit of King Felipe and Queen Letizia to the White House was the second top-level encounter between Spain and the US during Donald Trump’s first term. Nevertheless, the trip was marked by tension between the US and some European allies arising from differences over values, defence and (especially) trade policy, and recent domestic changes in Spanish politics. Therefore, given the many important interests at stake, there is a need to find formulas that can guarantee the stability of the bilateral relationship and avoid a new political debate upsetting it.

Analysis

On 19 June 2018 the Spanish King and Queen made their first visit to President Trump in the Oval Office. In the brief public encounter that took place after their meeting, President Trump –in addition to stating his intention to visit Spain– emphasised the close relationship between the two countries, mentioning, paradoxically, the most controversial issues in the context of transatlantic relations: trade and defence. After underlining the importance of the historical and cultural legacy that unites the two countries –the central motive for the visit, which also included New Orleans and San Antonio (Texas)–, King Felipe VI, for his part, identified democracy as an important asset the two nations have in common.

Despite the cordiality and robustness of the bilateral relationship, the Spanish Royals’ visit to the US took place in a context of political debates and changes with potential consequences for both the bilateral relationship and the EU-US relationship. These changes and discussions have unfolded within two different contexts: (1) the transatlantic relationship; and (2) domestic politics in Spain.

Political controversies clouding the transatlantic relationship

The debates unfolding across the vectors of the transatlantic relationship have focused primarily on two central themes: trade and defence. A third topic might also be identified: the question of values, which for Europeans has both an international and an internal dimension.

The first of the controversies stems from the disputes that President Trump has provoked with his principal allies with his changes to US trade policy, including tariff barriers on various imported steel and aluminium-related products from the EU. Originally, the European countries (like other US allies, such as Canada) were exempted from their application. Nevertheless, the tariffs were ultimately imposed, and the EU responded with reprisal tariffs on a range of US products, following the example of other countries like Canada and China.

It is no secret that President Trump (going back at least to his election campaign) has made trade issues and the fight against the trade deficit one of his most important banners. Upon assuming the presidency, he withdrew the US from the negotiations and ratification process of the Trans-Pacific Partnership (TPP), despite the agreement’s political significance for relations with the states of East Asia, and he began re-negotiating NAFTA. Later, during his address to APEC in November 2017, Trump defended US participation in free-trade agreements but only if preferential, bilateral and ‘fair’. He himself defined the trade issue as a ‘vital’ interest for the US, and he made this argument all through his Asian tour, even with allies like South Korea and Japan; on the other hand, he also signalled the maintenance of US security guarantees in those countries.

These differences were nowhere in plainer view than at the G7 meeting in Montreal on 9-10 June 2018. The US President’s vision collided there with that of European allies like Germany and France. His prickly exchanges with Canada’s Prime Minister even led Trump to refuse to ratify the final declaration that had been previously agreed upon and drafted by consensus before the summit.

While trade has been the central part of the debate on both sides of the Atlantic, questions of security, defence and values have also been present in the discussions.

In the field of security, the US criticisms of the scant defence spending among the European allies, and the concomitant US reticence to share the costs (financial and human) of different armed conflicts are not new –and were characteristic of a number of previous Administrations– and have stimulated the development of an option for an alternative defence relationship to NATO, based on a new European security and defence policy known as Permanent Structured Cooperation (PESCO). This new direction, observed with certain suspicion by the US, and even as much by NATO, is still subject to significant uncertainty regarding its reach and possibilities for materialisation as a realistic alternative to the US presence. Despite the many declarations by European leaders, including the High Representative, Federica Mogherini, on PESCO’s compatibility with NATO, its development has not contributed to an improvement in the relationship with the US, particularly given the exclusion of US financing from European defence and security projects.

Some of the unilateral diplomatic decisions taken by the US have not contributed to an improvement in the transatlantic relationship. Prime examples include the US withdrawal from the nuclear agreement with Iran –never mind the negative consequences for the security of the Middle East– and the sudden warming of relations with US allies like Saudi Arabia and Israel. Despite the political will of European states (like the UK, German and France), and of the EU itself, to remain in the Iranian agreement to guarantee that it survives, without US participation –the key when considering the real implications of re-establishing sanctions– its survival will be difficult to maintain.

Shared values –the defence of human rights, and of liberal democracy as a form of government– have been a traditional asset of the transatlantic relationship. This traditionally shared pillar of identity is today nevertheless in crisis and subject to growing debate. The appearance of so-called ‘illiberal’ democracies and the rise of populist movements –both to the right and the left– have caused a crisis in one of the pillars of the transatlantic relationship straddling the Atlantic. Although the Trump Administration and the major EU leaders have contrary positions on the issue, it should be noted in this regard that it would be an enormous simplification of reality to maintain that such divisions only exist between Europeans and Americans.

Currently these disagreements on democracy, human rights and migration issues also exist between different domestic political forces in the US and within European states themselves; but the divisions are also there between European countries, with Germany and France on one side, and Italy, Austria and the countries of Eastern Europe on the other. But even within Germany, the same divisions have affected the government, forcing it to work hard to maintain its complex political balance.

Relations with the US and domestic politics in Spain

The censure motion of 1 June made Pedro Sánchez Prime Minister. This is a significant political change, even if its consequences, along with the new government’s elbow room, will remain limited by the current composition of the Congress of Deputies and by the limited time (two years) remaining in this legislature.

As analysed elsewhere, the bilateral relationship with the US has often been subject to political debate and has typically been at the centre of most major disagreements in Spanish foreign policy (including the 1986 referendum on NATO and the 2003 debate over the Iraq war). There was a cold personal relationship between President George W. Bush and Spain’s Prime Minister Jose Luis Rodríguez Zapatero. A string of diplomatic incidents only made matters worse, and the relationship only began to recover after Obama’s election victory in 2008 when Rodríguez Zapatero made important decisions to incorporate Spain into the European anti-missile shield (for which four US destroyers would be based in Rota).

Since then, the bilateral relationship has remained on cordial terms. However, there has been little US interest to make the bilateral relationship more visible. Obama’s visit to Spain only came at the end of his second term, greatly disappointing the Spanish authorities.

Despite the potential risk for a political debate to break out around the bilateral relationship upon Trump’s assumption of power, the Rajoy government was able to maintain a cordial relationship. On 26 September 2017 Mariano Rajoy was invited to visit the Oval Office, where he gained US support on the all-important Catalan issue (support for Spain that was even stronger than that of some of the European partners). Trump even went so far as to support an increase in trade with Spain. Of course, this openness was facilitated by the fact that the bilateral trade balance is in surplus for the US (in contrast to many other countries with which the US maintains a bilateral trade deficit). Within the bilateral relationship, the Rajoy government did not openly align itself with the countries (like Germany) most critical of Trump, but nor did it give anything like unconditional support for US positions.

The new government poses at least some uncertainty as to the potential for continuity –or rupture– in the bilateral relationship. Traditionally, US interests in Spain have revolved around questions of security, economy and trade, and the defence of intellectual property. Although the latter issue is now less contested, the other two could easily see new controversies.

In the realm of security, the Spanish commitment to increase its defence spending to 2% of GDP –first made at the Cardiff Summit in 2014 and clearly in Spain’s best interest to achieve– has cooled to a certain degree with the passage of time. Even with the previous government and despite successive increases in defence spending, the percentage calculation for this year is no higher than 0.91% of GDP –very similar to the level when Donald Trump became President–. The former Minister of Defence, María Dolores de Cospedal, proposed that defence spending increase to a ceiling of 1.53% in 2024 –instead of the 2% set in Cardiff–. The trend has been confirmed by the new Minister, Margarita Robles, when she said that to reach a level of defence spending of 2% of GDP, as established by NATO, ‘is not a realistic objective’.

It remains to be seen how this decelerating trend in Spanish defence spending –contradicting Trump’s extreme discourse, which nevertheless maintains a clear continuity with the positions of past Administrations– might affect the bilateral relationship, or if it will take a back seat to the issue of the military bases –perhaps the most important US assets in Spain–. Some indication on this could arise at the next NATO summit on 11-12 July 2018 in Brussels, where the first encounter between the US President and the Spanish Prime Minister will likely take place.

Trade is another key issue. However, excepting the black-olive case, the issue will be highly conditioned by US trade policy towards the EU and by the US Administration’s overall goal to reduce trade deficits without distinguishing between allies and adversaries. In this policy area, Spanish interests will likely tend towards an alignment with the rest of the countries of the EU, given that the US has imposed tariffs on a wide range of European products.

The risk remains (as it does for other European countries) that Trump’s lack of popularity and low public-opinion rating in Spain (only 2.2 out of 10, according to the latest Barometer of the Elcano Royal Institute) will prompt new political debates over the bilateral relationship. This would not benefit the important security, economic and cultural interests that Spain has at stake in the bilateral relationship with the US (Spain’s leading foreign investor). Despite Trump’s low popularity in Spain, paradoxically, most Spaniards (64%) consider the US a good ally. This is even higher than last year, implying a certain departure in the positive sense from the more traditional ‘personalisation’ of the bilateral relationship, which has typically meant that the current leader temporarily occupying the presidency tended to become a decisive variable. It is very possible that the need for US support for Spain on issues as complex as the Catalan independence process have contributed to this new perception of Spanish public opinion.

Given the important interests at stake in the Spain-US bilateral relationship, one of the most important objectives is to maintain stability, regardless of who temporarily occupies the presidency. In this respect, in the wake of his recent US visit, the King can play a decisive role. It is well known that for decades the US has cultivated a relationship with the King of Spain, perceiving him as a key to the stability and continuity of the bilateral relationship. The King’s recent visit only strengthens this position. In complex political circumstances like those today and given the transatlantic political realities of the moment, along with the uncertainty generated by the recent domestic political changes in Spain, the King could play a key diplomatic role in guaranteeing a certain level of stability in the bilateral ties with the US.

Cultural ties have an important position in the bilateral relationship and served as an additional motive for the trip. This was clear from the King’s attendance at the 300th anniversary of the founding of both San Antonio and New Orleans (where Spain’s 40-year presence –from 1763 to 1803– is more significant than is generally recognised in other parts of the country like the south-west or Florida). The celebrations will publicise the knowledge of Spanish links with states like Louisiana. Such little-known Spanish ties with the US have recently been brought to light by the spreading of new, concrete symbols attached to the bilateral relationship (as with Bernardo de Gálvez).

The US trip also occurred at a moment of controversy over migration issues –as the two countries have generally opposing positions– but particularly at the European level, where a tightening of EU migration policy is expected at the next European Council on 28-29 June. The domestic debate and division in the US over immigration does not sit well with Spain’s traditional aspiration to represent the Hispanic population. But the objective is not very realistic; in any case, it should be subordinated to other more important objectives for the national interest, in line with how other EU countries (like Germany, France and Italy) manage the issue within their bilateral relationships with the US, which is what the current US Administration would prefer. A different question is whether common points can be found on issues of mutual interest (ie, a solution to the Venezuelan crisis in which Spain could play a leading role).

Conclusions

The Spain-US bilateral relationship has traditionally been the controversial source of much dissent and debate. The visit of the Spanish Royals to the US came at a particularly complex moment across several crucial debates unfolding on both sides of the Atlantic over migration, trade and defence policies.

The ‘Jacksonian’ posturing of the Trump Administration on these issues has made dealings with the allies (and not just the Europeans) very complex, while the lack of a defined global strategy exposes US foreign policy to abrupt shifts, lending it an unpredictable character. Despite everything (as mentioned above), the lack of hostility towards Spain on the part of the US President reduces the most pernicious effects of such dynamics.

Given the important security, economic, cultural and even domestic political interests at stake, it remains in Spain’s best interest to maintain cordial relations with the Trump Administration –even despite the ongoing lack of US awareness as the vital nature of this relationship, as revealed in strategic documents and the public pronouncements of US leaders–. The new Spanish government should avoid committing the mistakes of the past; nor should it place the Spain-US relationship up for a new debate.

Therefore, a policy of continuity should be applied to the bilateral relationship. This will allow Spain to avoid aligning unconditionally with either the US Administration or the European states (who have totally contrary positions), and to strive for an autonomous and neutral stance that guarantees Spain’s defence interests without ruling out the possibility that when US and Spanish interests clash its reaction can be tailored and discreet and undertaken within the EU context (just as is expected to happen with trade).

One important factor to keep in mind is the need to dissociate the bilateral relationship from the individual temporarily occupying the US presidency. Spanish public opinion has already begun to make this distinction, seeing the US as a good ally even despite the very negative view on President Trump held by Spanish public opinion. Spanish leaders should be able to make the same distinction.

Security and defence are the most important aspects of the bilateral relationship. Nevertheless, it would be wrong to think that the increase in defence spending is simply to do with the desires of Trump and his predecessors. Expenditure should be seen as a strategic investment in Spain capacities and in its position in the international system –not as an unpopular move prompted by pressure from the US Administration–.

The Royal visit also raises the visibility of the important diplomatic role played by the King in Spanish foreign policy. His contribution could be key to the stabilisation of bilateral relations and as a guarantor of their continuity. While the Royals have prompted controversy, they remain highly important for Spain’s interests, particularly in the current moment of the Spain-US bilateral relationship.

Juan Tovar Ruiz
Professor of International Relations, University of Burgos | @JuanTovarRuiz

]]>