The necessary debate

The first political debate between Prime Minister Mariano Rajoy and opposition leader Alfredo Pérez Rubalcaba resulted in a moderate degree of confrontation; it also provided proof that the Socialist Party is planning to conduct a responsible, well-argued kind of opposition, as well as evidence of some common ground regarding the overall economic strategy for fighting the recession.

While not a cause for excessive optimism, it is still worth noting that the government and the opposition seem to agree about wishing to negotiate new public deficit deadlines and conditions with Europe.

Spain cannot meet the 4.4 percent target, and Rajoy appears willing to go to Brussels to discuss a new adjustment calendar once the revision of the euro-zone’s macroeconomic situation is made public. The prime minister trusts that in a period of recession, the Commission will accept a more flexible adjustment calendar.

Rubalcaba demonstrated political firmness when he absolutely refused to support the budget stability law, since he feels it breaks with the constitutional agreement signed last year by the Socialist Party and the Popular Party (PP) to encode stability into the Constitution. This is a problem that should not be underestimated. It is not the same thing having a (small) deficit margin to implement an independent economic policy and stimulate demand or employment, as limiting that margin to exceptional circumstances such as disaster situations or structural reforms. Europe is not demanding zero deficit, just a graduated limitation that maintains the solvency of national debt. Rajoy showed himself to be conciliatory on this point, and ready to discuss differences of criteria, knowing that political unity is decisive on matters of stability in order to sustain financial solvency.

But if Rubalcaba’s speech heralds a profound debate on economic policy (if the government accepts the challenge), the prime minister’s explanation of the economic situation is cause for some reasonable doubts.

To begin with, he should not overplay the references to the situation he inherited from the previous administration. While telling the truth is a positive value, it has no curative virtues.

Rajoy announced that 2012 will bring more recession and more unemployment because the situation is critical, but the citizens remember that the PP’s campaign promises and the prime minister’s investiture speech mentioned all sorts of job-creating measures. The prime minister should be equally sincere about explaining whether those measures have disappeared, are impossible to put in place, are being delayed, or whether he simply made a mistake by mentioning them in the first place.

Two reforms

Wednesday’s session of parliament left even more food for thought. The government’s economic policy is based on two reform[/TEX]s — financial and labor — which Rajoy describes as a necessary (though not sufficient) condition to return to the path of growth. Yet the financial reform that’s already been announced will not increase credit flows in the short run and perhaps not in the medium term, either.

What’s more, we have yet to see whether the policy of lender mergers does not distract affected banks from the task of growing the business via the traditional method, i.e. attracting deposits and granting loans.

As for labor reform, no matter how “deep and balanced,” in the short run all it can hope to do is put the brakes on job destruction — no small matter, in any case. The decisive issue at hand is knowing what the government will do to actually create jobs. Either its strategy is to trust that both economic policy reforms — a continuation of previous ones — will work and that, with any luck, economic activity will expand of itself by mid-2013, or else it has a comprehensive set of measures to stimulate demand, whether with or without Europe’s acquiescence and funds.

A congressional debate on economic policy is needed to clear up this crucial matter.