Time to work together

Fernando Fernández. Professor. IE Business School

29 January 2016

The results of Spain’s latest election has left a parliament that is so broken, that the medicine needed to put the pieces together and heal the country’s wounds  can only be administered by a great coalition.

The campaigns leading up to the recent Spanish election were played out as if the choice was between Borgen and Game of Thrones, or Denmark and Florida. The ballot box results, however, mean that in reality the country is now left with a choice between the German or Italian model. Basically, when the Spanish were called on to choose between Nordic modernity, minimalism, solidarity and competitiveness, and the vicious and corrupt Florida of brick and get-rich-quick schemes, in the end they actually chose Spain, an explosive and changing mix, where there’s always someone ready to stick the knife in, where excellence cannot be forgiven, and where mediocrity is dressed up as egalitarianism. In this Spain of ours, the electoral math was ruthless. Neither of the two main Spanish camps that were willing to steel their hearts and take a plunge has a big enough majority. Nor will there be one in the near future, no matter how much we insist on holding elections every three months. 

When all the hullabaloo driven by personal interests, over-inflated egos, and broken dreams has died down, we’ll see that there are only two possible alternatives: either one big coalition or early elections. All the rest are just theoretical possibilities and are no more than fleeting pipe dreams. This article is based on the premise that while the GDP may not bring happiness, without growth or job creation there is only misery, while social conflict becomes engrained and leads to explosive situations, and citizens’ lives become increasingly miserable.  

Take Italy, which is a great country, but for the last twenty years its economic results have been far from satisfactory. What’s more, as 2016 kicks off, its GDP is still almost 10% below that of 2008, while in a Spain, where cutbacks have been the order of the day, there is a gap of just 2%. The stock of Italian public capital is in far greater need of improvement than that of comparatively better off Spain. And I am not talking about motorways, high-speed trains or airports, but also, and particularly, about infrastructures for education and health.  The underlying reason for Italy’s situation is that it has an intrinsically dysfunctional political system. This causes both governmental instability and a lack of alternation. Hence it is impossible to take decisions and any economic cutbacks are the result of inertia. No reforms are made and spending is limited to available funding, particularly investment because overall expenditure is indexed in practice. The institutional impasse appears to be changing with the Renzi government, but if there is any possibility of success is due to its comfortable parliamentary majority. 

Meanwhile, Germany’s GDP is almost 5% higher than in 2008. Many People in Spain use this fact to argue that there is an unfair distribution of costs of the crisis. There is no doubt that it is a manifestation of the problems of institutional design of the original monetary union, faults that Germany is helping to solve by insisting that there can be no pooling of banking and sovereign debt risk without prior fiscal union. But what they are deliberately ignoring is that the root of the success of the German export sector lies in the structural adjustment of labor relations and institutional labor market framework to the demands of the new international competition that has emerged with globalization. Furthermore, this adjustment was only possible because of the large coalition of social democrats and conservatives, which in turn was due to the SPD’s rejection of possible agreements with parties to its left, in spite of the fact that, as in Spain, many city councils are governed jointly, as are some Länders.  

Spain is different, unfortunately. The right is not only a rival to be beaten in elections, but also the encarnation of everything that is wrong with the world. Anything goes when it comes to getting them out of power. Even teaming up with anti-system parties and those that want to break up territorial unity. This anti-imperialist trend, nostalgia for turbulent and difficult times shrouded in legend, is taking over from the objective fact that there are more things that unite the main national parties than separate them.

Europe is a shared idea. Europe’s social model is the joint product of democristians, liberals, and social democrats. Spain’s PP, PSOE and Ciudadanos political parties, the Spanish lib dems, frequently vote together in the European parliament. They even share out power. But this kind of agreement sounds impossible in Spain, even when there is no other alternative than instability and impoverishment as a result. It is, however, easy to imagine an agreed program if we don’t let ourselves be swayed by media noise and traditional fratricidal treachery.

In terms of economy, one thing I can say with greater certainty is that the differences are big but also surmountable. The three constitutional parties agree on the basics. The priority is to anchor Spain in the monetary union, which implies continuing the consolidation of public accounts. We can argue with Europe about the pace of cutbacks but it is essential to comply with, both faithfully and sufficiently, the agreement we finally reach with the EU. The three parties all talk about an intelligent and inclusive fiscal restructuring in order to make it more efficient and fair.  The differences lie in the details, which are doubtlessly considerable but also negotiable, in areas like labor, innovation, technology and education.  If only we could just also accept that in the field of education consensus can only be built on a common denominator of the shared space of public-private collaboration, as in health, pensions, social services or other areas of dependence. The biggest programs can be relegated to the archives, because politics is about the art of doing what is possible. And the only thing that is possible today, in addition to always being desirable, is to make consensus-based advancements, with broad agreements.

In terms of autonomous regions, including Catalonia, agreement is possible. You only have to look at successful experiences in the field of fiscal federalism. How else could the current state of autonomies be described? In theory there are two possible systems, maximum decentralization without shared fiscal regulations and without federal bailout mechanisms or bailouts dependent on central discipline. The first option is unthinkable in Spain, ever since this legislature was obliged to create a regional liquidity fund and a supplier payment fund.  The European Monetary Fund itself has been building a similar mutualization system rather than a central discipline with an increasingly important role for the Eurogroup and the Commissions, to the detriment of national treasuries. Denying Madrid what we are cheerfully willing to grant to Brussels is pure demagogy designed to feed the ghost of an enemy without.

An agreement on the matter of electoral law, institutional reform or institutional change is also possible, if we renounce over-simplification. There is no such thing as a perfect electoral system. Pure proportionality doesn’t exist, and nor do open lists, because wherever they are supposed to exist, like in the senate, practically nobody uses them. But proportionality can be improved without doing too much harm to stability. Improvement of Spain’s institutions is recommendable. But it is no easy task because institutions cannot be replicated or exported. It is people who hold positions, defend institutions, guarantee or prevent them from being more professional or independent. But there will always be healthy conflict in a system of dynamic equilibrium among technicians and representatives of popular sovereignty. Constitutional reform is no panacea. Let’s not fall into the trap of the mythology of the Second Republic. But it is possible to agree on some changes, and have something more along the lines of an aggiornamento than a revolution, which is not what the electorate has not asked for. Changes can only be achieved with a substantial majority of the parliament like that provided by a broad agreement among the three parties that represent Europe’s social consensus. 

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