2013: Another rough ride for Spain

Last year presented probably the toughest baptism of fire for any Spanish prime minister since the transition to democracy, but Mariano Rajoy knows that this year will be just as challenging.

The big problems facing his government in the coming months are, for the most part, those that dominated 2012: the markets and a pending bailout; rising unemployment; lack of growth; social unrest; and Catalonia’s push for independence.

The bailout presents perhaps the most vexing problem for Rajoy, because it demands decisiveness from a notoriously equivocal politician.

Although Spain’s borrowing costs have dropped from their alarming levels last summer following Mario Draghi’s assurances about the ECB’s willingness to buy the sovereign debt of struggling nations, they are still high. Spain’s private sector is frustrated at the cost of credit and several of the country’s EU neighbours  – Germany being an exception – cannot understand Rajoy’s dallying. While the Spanish leader has sought to frame his refusal to ask for a full rescue as a show of national sovereignty, if, or when, he does eventually make the request, there is a risk the delay will simply be seen as time wasted.

Time is also a key factor as the government hopes to see its labour reform show some benefits. Its introduction in the first quarter of 2012 coincided with a continuing rise in unemployment to a current level of over 25 percent. To the man in the street, it looks suspiciously as if a reform that aims to make hiring and firing easier is merely doing the latter. Some analysts cite cases where jobs continue to be destroyed for up to 18 months after the introduction of such legislation before it has any discernible positive impact. But of course, economic growth is a crucial ingredient in that equation and none is expected at least until the very end of 2013.

The social unrest that has been an almost non-stop feature of Rajoy’s tenure so far will continue this year, but a lot depends on its exact nature. Constant protests by different groups across the country against cuts are inconvenient and bad press for the government, but so far there have been few actions that cause it real concern.

One exception was the series of “Surround Congress” protests in September and it seems that those kinds of actions, rather than the more predictable labour union-led strikes, have the greatest potential to harness public anger.

Defusing Catalan tensions

One issue where sitting tight and waiting definitely will not pay off for the Spanish government is that of Catalonia. The region’s move towards independence has to be taken seriously, however insurmountable the financial and technical hurdles ahead of that goal seem.

The coming months will see Catalan premier Artur Mas negotiate with the ERC party in an effort to agree on a 2014 referendum on independence. Those talks are likely to be bumpy, given the two sides’ approach to economic and social issues, and so Madrid has the chance to reach out to the northeast and defuse an increasingly tense situation.

But that would require the kind of boldness and resistance to Madrid-centric pressures that we haven’t yet seen from Spain’s prime minister. His biggest challenge of all in 2013 will be to confound expectations of him.