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Austerity Dogmas Will Hobble Spain’s Response to Coronavirus

Spain has announced it will take over private hospitals and pharmaceutical companies to fight coronavirus. Yet in the PSOE-Podemos coalition, some ministers are still defending fiscal austerity. Their neoliberal dogma could get people killed.

Empty Plaza Mayor with police car on March 16, 2020 in Madrid, Spain. DeFodi Images via Getty

With the number of coronavirus cases surpassing 7,500 and the death toll at over 280, this weekend Spain’s left-wing government declared a state of emergency. Following Italy, the entire country has been placed in a two-week lockdown, starting Monday. The government has granted itself extraordinary powers to take control of all private hospitals, to mobilize other necessary private resources (like those of the pharmaceutical industry), and to place autonomous (regional) administrations under Madrid’s direct control.

Yet the forces which backed Prime Minister Pedro Sánchez’s reelection in January have been divided by these measures. Early critics included the Basque and Catalan parties, who accused the Socialist (PSOE) premier Pedro Sánchez of using the crisis to make a centralizing power grab. This itself showed how far the coordinates of Spanish politics have been upended by the crisis. An administration elected just two months ago on the promise of dialogue with Catalonia’s pro-independence government has now been forced to make an unprecedented intervention in the autonomous regions.

But also disputed is the question of who will pay for the crisis. After a seven-hour cabinet meeting on Saturday, the PSOE and its left-wing coalition partner Unidas Podemos were unable to reach an agreement on economic measures aimed to protect workers from loss of income. Deputy premier Pablo Iglesias broke quarantine to attend (after his partner, Equality Minister Irene Montero tested positive) as he and other Unidas Podemos ministers squared off against PSOE Economics Minister Nadia Calviño and Finance Minister María Jesús Montero. The government’s two financial heavyweights refused to accept the economic interventions that the Podemos leader was pushing for, as they instead prioritized controlling the budget deficit — and rebuffed the idea of a European stimulus package.

The exact details of Iglesias’s proposals have not yet been released. But already in November’s general election, the radical-left formation promised that its presence at cabinet could ensure that any future cuts would be “against those at the top of society, rather than those at the bottom.” Nobody expected its decisive test to come so early into the coalition’s term. But the ongoing battle at the heart of the Spanish government can be seen as a microcosm for the dilemma facing Europe as a whole: it can make a rapid break with economic orthodoxy, or else condemn millions to serious hardships — and worse.

The Coalition’s Fault Lines

Formerly the European Commission’s director-general for budgetary affairs, Economics Minister Calviño has been described as “the Troika’s own representative in [the Spanish] cabinet.” She and Iglesias — both of whom are deputy prime ministers — have already clashed repeatedly since the coalition reached office. First, Calviño was opposed to the inclusion of rent controls in the program for government and then she disputed a moratorium on housing evictions for those in social distress. Iglesias came out on top on this question. But then his party had to compromise on plans to raise the minimum wage — with the increase capped at 5 percent rather than the 10 percent for which Unidas Podemos had initially pushed.

A fresh dispute opened up last week as the scale of the coronavirus outbreak became apparent. After the number of confirmed cases in Madrid doubled on Monday March 9, numerous ministers from both parties, including Iglesias, pushed for a swift declaration of a state of emergency — highlighting the seriousness of the crisis and the need to respond. But this was opposed by Calviño on economic grounds, fearing that it would spook the markets. Prime Minister Sánchez remained on the fence until as late as last Thursday evening — still unwilling to commit to such drastic action as events overtook him.

These lost days of inaction were decisive for Spain. It leap-frogged France and Germany to become the European country with the second highest number of cases, with the toll rising exponentially. In Madrid, where over half the cases were concentrated, schools, museums, bars, and restaurants were all closed by Friday. But with no formal lockdown declared, thousands of residents with second homes on the coast — including right-wing former premier José María Aznar — simply left the city, despite calls from the regional government not to do so. By late last week even Madrid’s right-wing premier Isabel Díaz Ayuso accepted the need for extraordinary measures — such as intervening in the region’s private health system and using hotels as quarantine zones. Her administration announced that it would stop testing those with mild symptoms as they could no longer cope with the numbers — with the city hitting close to 2,000 cases by Friday morning.

As it became clear that a state of emergency was inevitable, the government’s focus turned to the broader set of measures that would accompany it — and how it would deal with the social fallout of the mounting crisis. Yet the results were distinctly unimpressive. On Thursday Calviño’s team leaked statements to the press announcing that Spain would join the Netherlands and Germany in defending the European Union’s austerity regime and oppose a stimulus plan proposed by Italy and France. According to these leaks, she believed that “it was not time for irresponsible behavior” and instead the European response should remain within the parameters of the “flexibility mechanism” within the European Union’s fiscal compact.

Such a response marks a total refusal to acknowledge the drastic social impact this crisis will have — and stands in contrast with the rhetoric of a “progressive government.” This is especially apparent when it comes to the likelihood of mass job losses. Forty percent of Spanish workers are on either part-time or temporary contracts — and two-fifths of these latter amount to less than a month. Initial estimates suggest a million people could be laid off due to the lockdown while millions more face a steep drop in their income. Calviño’s leaked statements were not an agreed government policy to which Unidas Podemos or even all her PSOE cabinet colleagues had signed up.

Finding itself in an unprecedented situation, the government was making policy on the hoof — and with no clear direction from Prime Minister Sánchez, two different camps opened up within its ranks.

Making Cabinet Presence Count

This became apparent at Saturday’s cabinet. After the meeting broke up without an agreement, Iglesias suggested that their approaches starkly contrasted — tweeting that “nobody should be left behind as happened in 2008.” This was echoed by Barcelona mayor Ada Colau who asserted: “We can’t repeat the mistakes of 2008. We must support working families with a guaranteed minimum income and moratorium on rents.” On Sunday evening Podemos co-founder Juan Carlos Monedero, one of Iglesias’s closest confidants, emphasized his priorities: “Public services, avoiding evictions, helping the unemployed and those who are self-employed … a moratorium on mortgages, avoiding layoffs … a ban on cutting people’s water, electricity and gas. That’s why we founded Podemos.”

Indeed, the failure of previous PSOE premier José Luis Rodríguez Zapatero to resist calls for austerity after the 2008 global financial crash is part of Podemos’s DNA — with the party tracing its roots back to the Indignados movement and the sense of anger felt towards Socialist-imposed cuts. Having become the first radical left force to reach government in eighty years, it is today determined that it will not be forced into implementing austerity. Iglesias “fought to the death” on Saturday for a package that would maintain the social-democratic spirit of the two-month-old program for government. But he and Unidas Podemos are now confronted with advancing such an agenda in a difficult balance of forces.

The public statements from leading figures in the party is part of a strategy of making the differences within the executive as public as possible as a means of exercising pressure on PSOE. There are clear factional differences within PSOE and since the coalition took office, these have repeatedly surfaced — indeed, various Socialist ministers backed Iglesias against Calviño’s insistence on budgetary rigor.

Yet, as ever, Sánchez’s exact position remains unclear. His leadership of the PSOE has been defined by constant tactical pivots — from the left to center and back again — but his career will surely be defined with what he decides to do next, faced with this dramatic crisis. Tuesday’s Eurogroup and cabinet meetings will be decisive in this regard — with the European Union’s only left-wing coalition looking to navigate unchartered waters without breaking apart.