The Spanish Exception

The legislative advances of recent years have been secured through both the radical left and Spain’s major trade unions working within a framework of social partnership and moderate social democratic governance. In this respect, what marks Spain out as an exception in Europe is not only the Left’s stemming of the reactionary tide but also the degree of industrial and social peace the country has experienced over the last eighteen months.

This is despite the fact that Spain initially suffered one of the most dramatic initial inflationary spikes in Western Europe in the wake of the war in Ukraine — which, in turn, translated into one of the steepest drops of real wages among OECD countries in 2022 (−5.3 percent). While the country’s two major trade unions — Comisiones Obreras (CCOO) and Unión General de Trabajadores (UGT) — threatened industrial action last summer as they launched their joint ‘Salaries or Conflict’ campaign, their response to the cost-of-living crisis prioritised pressurising the coalition government to pursue pro-worker policies while securing a national pay agreement with employers.

This calculation reflected the fact that in the two years prior to the war, the unions’ close working relationship with the coalition had led to important gains for workers — not least because their legislative agenda dovetailed with that of the labour minister and Sumar leader, Yolanda Díaz. A former labour lawyer and lifelong member of the Spanish Communist Party, Díaz negotiated a series of tripartite agreements between employers and unions centring on high-profile policies, including the state’s pandemic furlough scheme, a number of minimum wage rises, legislation cracking down on bogus self-employment and the gig economy, and, in 2022, the coalition’s flagship reform of Spain’s labour laws.

The latter reform represented a break with the decades-long trajectory of downward pressure on labour protections, with CCOO’s leader Unai Sordo insisting that this was ‘the first time in thirty years’ that a major reform ‘recovers and improves workers’ rights’. The most immediate impact of the new law has been a historic drop in the use of precarious temporary work contracts, with the percentage of fixed-term contracts in the employment market going from 26 percent in 2021 (then the highest in Europe) down to 13.7 percent this June — thus offering greater employment security to nearly 3 million workers. Furthermore, the reform also re-established the primacy of sectoral wage agreements over company-level ones — ensuring unions’ ability to collectively bargain for a standardised level of pay across a sector, including for those working for subcontractors.

According to Communist Party leader and Sumar MP Enrique Santiago, Díaz’s close alignment with the unions has been key to pushing PSOE further in a progressive direction. ‘We view the two major class-based unions as strategic allies, who have played an essential role in advancing the government’s social and labour agenda,’ he told me in April. ‘Above all, we [on the Left] would not have been able to advance a series of key measures [against PSOE resistance], such as the Rider Law [protecting gig workers] or the labour law reform, without their clear backing.’

Combating Inflation

This dynamic has also operated to give Sánchez greater autonomy from the right-wing of his own party, which had on multiple occasions sought his ouster. This autonomy was clearly evident in the government’s response to the cost-of-living crisis. Many of the coalition’s more substantive anti-inflationary measures started off as Unidas Podemos proposals that were only taken up after months of lobbying and initial resistance from PSOE’s centrist economics chief, Nadia Calviño.

One of the most notable cost-of-living policies was the price cap that the government implemented in the electricity market in June of last year, which contributed to Spanish prices in the first half of 2023 averaging 41 percent lower than the combined median cost in the UK, Germany, France, and Italy; and being 61.5 percent down on the country’s own average in mid-2022. Unlike other countries — which tended to fall back even more on carbon sources amid the oil and gas shortage — Spain also managed to ramp up alternative energy production.

Similarly, other left-wing proposals that were adopted by the cabinet after pressure from the Left included the extension of the pandemic-era rent cap (with increases limited to 2 percent in 2023), substantive reductions to the cost of public transport (including making commuter and medium-distance train travel free of charge for eighteen months), the introduction of a temporary wealth tax, and windfall taxes on the profits of banks and energy giants. The latter taxes suffered an inevitable watering down through negotiation — leaving these sectors’ record profits largely intact — while PSOE has also refused further price controls, such as on the cost of basic foodstuffs.

But, despite these compromises, the coalition’s overall package succeeded in rapidly reducing inflation. In fact, Spain ended 2022 with the lowest inflation levels in the eurozone. By the first quarter of 2023, average wage growth (6 percent) was marginally outpacing inflation (5.1 percent), while in the eurozone as a whole real wages continued to fall by 2.7 percent. According to El Pais, initial indicators also suggest this trend continued into the second quarter, with wages in private sector companies rising 1.7 percent above inflation. Furthermore, OECD figures showed that the annual growth in Spanish household income was the third highest among its member states during the first three months of 2023, helped by the fact that the government and unions negotiated an 8.5 percent rise in public pensions and minimum income payment, as well as an 8 percent increase in the minimum wage.

While the cost-of-living crisis immiserated workers in Britain and across Europe, Spain’s government managed to largely shield the working class from the fallout. This is no mean feat, particularly in a country whose labour market is exposed to external shocks following the brutal internal devaluation in the wake of the financial crisis of 2008. But this recovery in living standards looks set to be gradual and, for many workers, only partial. The non-binding national pay agreement signed by unions and employers in May, which lays out a recommended minimum 10 percent wage increase over the next three years (2023–25), would not recover the majority of the losses in real wages from 2022 — though in many sectors actual wage growth will outstrip this minimum figure.

Junior Partner

This points to the dilemma facing both the radical left and unions over the extent to which Spain’s wider social crisis can be tackled within a PSOE-led social partnership framework. As Sumar MP Txema Guijarro told Tribune in the run-up to the elections, PSOE has acted as ‘a constant brake when it has come to instituting longer-term reforms’ on structural issues driving inequality — even in areas such as housing and progressive tax reform, where the programme for government laid out explicit commitments.

For instance, the outgoing consumer affairs minister and Izquierda Unida leader, Alberto Garzón, recently pointed to Sánchez’s unwillingness to confront the country’s powerful rentier class when negotiating this year’s housing law, insisting that ‘[T]he material base that sustained neoliberalism and the real estate bubble has not seen its privileges altered [under the coalition]. There has not been an ambitious public housing programme … because there has been no desire to move forward along these lines.’

In the wake of Podemos’ left populist surge between 2015 and 2017, Sánchez was alone among his colleagues in recognising that PSOE had to engage the radical left in order to avoid the decline that other social-democratic parties were suffering across Europe. He pursued a strategy of working with broader forces when necessary while also appropriating part of their discourse and agenda to suit PSOE’s long-term objectives.

Yet his progressivism has repeatedly stopped short of measures that promised more fundamental change — and challenges to power. When it comes to Spanish capitalism, the government’s legislative reforms, which propelled the impressive election result, were ameliorative rather than transformative. Now, after the initial relief at avoiding a hard-right PP–Vox government, Sánchez has come out of the coalition’s first term in office reinforced as the undisputed head of Spain’s progressive bloc — even if Sumar’s vote largely held up compared to 2019.

After months of damaging internal factionalism on the radical left, Diaz’s campaign concentrated heavily on the platform’s pro-worker programmatic appeal — laying out an agenda that would guarantee a series of tangible new rights in work, housing, and healthcare. Proposals included an expansion of public services to include free dental and eye care; a gradual reduction of the working week to thirty-two hours over the course of the next legislature; massive state investment programmes in public housing construction and green reindustrialisation, funded through the establishment of a state development bank; as well as a raft of progressive tax reforms.

But if the Spanish left has managed to flex its muscle in targeted policy areas over the past four years, it will now have to operate within a more complicated balance of forces in parliament and likely face shrinking fiscal space (as the European Commission seeks to reimpose national debt rules). In this context, instituting the type of necessary reform agenda it laid for Spain over the coming decade will be an uphill struggle.

But the next chapter is unwritten. Fresh elections at Christmas are a real possibility if PSOE cannot stitch together a fragile parliamentary majority, with any new progressive coalition dependent on the support of centre-right Catalan and Basque nationalists. More likely than not, however, a Sánchez-led government will be sworn in by late autumn.

In negotiations for a new programme for government, Diaz has prioritised further measures to tackle the cost-of-living crisis and a commitment on improved protections for workers. Her exact margin for extracting further concessions from PSOE is likely to rely on the ability to mobilise pressure from below.