Isn't it the economy, stupid?

Politicians tend to obsess over the importance of the economy as a vote guide. But although it is obvious that it is always a capital issue, it is not clear that it is the determining factor in every election. Except in truly dramatic situations, when the country’s economic future seems to be at stake.

Iván Redondo, the political consultant and former head of Cabinet of Pedro Sánchez, referred to the issue during his intervention this week at the series of Foros de Vanguardia and assured forcefully that “the only general elections in which the economy was the the most influential factor were those of November 20, 2011”, when the PP of Mariano Rajoy achieved an absolute majority against the PSOE of Alfredo Pérez Rubalcaba, which dragged the slab of the last government of José Luis Rodríguez Zapatero. Certainly, these were special circumstances, the economy had been in free fall for two years and it was clear that it would fall even more in the immediate future. Unemployment had gone from barely two million affected to more than five. The sock turned inside out. It would no longer be a question of following the advice of James Carville, Bill Clinton’s adviser in his successful campaign for the presidency of the USA in 1992.

It is understandable that, of the fourteen general elections held in Spain since the approval of the Constitution, those of 2011 were, by far, the most influenced by economic ups and downs. Redondo assured Barcelona that the issue that decided the rest of the elections “was the debate on Spain”.

Despite this empirical finding, the temptation of opposition leaders is always to take advantage of economic problems to promote their democratic rise. The behavior of the economy, in the form of cycles that include phases of boom, expansion and, in the worst cases, recession, makes it easy for politicians to rush to take advantage of it when activity is still in the decline phase .

The PP, both under Pablo Casado and the current president, Alberto Núñez Feijóo, also made this initial calculation. The Government of Pedro Sánchez took office when the economy was going down the slide, until it lost speed, growing less each quarter. And this trend was linked with the pandemic and confinement. It would sink, as a result of the confinement, to 22% in the second quarter of 2020. The Central Government’s response, in line with the large countries of the Eurozone and the rest of the large economies, was to lend more aid to companies and families. In short, more public spending.

But the problems did not end there. When we only had to wait for a strong recovery after the end of restrictions on social and economic activity, logistical problems arrived and, finally, runaway inflation. The European Central Bank (ECB) reacted by raising interest rates to cool the economy, to see if this would stop the escalation of prices. A change in monetary policy that could lead to a drop in public debt, as in 2010, and coincided with the vertical rise in energy prices.

Economic recession seemed inevitable, an irresistible temptation for the opposition. But there was a long list of arguments against this possibility. The savings accumulated after the confinements, the injection of public expenditure in its most diverse forms (financing to companies, guarantees to banks to facilitate credits, subsidies to consumption and spending); the new European funds for recovery, an additional stimulus. Even inflation itself has contradictory effects in the short term. On the one hand, it reduces the purchasing power of the population. On the other hand, via an increase in profits (as the studies of the ECB and the Bank of Spain have shown), it encourages companies to invest part of the extraordinary profits.

In conclusion, the Spanish economy has resisted more than expected. But it may not have been as a result of passivity. The labor market continues to grow with some robustness and despite the skeptics of Yolanda Díaz’s labor reform. The pensions have a new horizon, agreed by José Luis Escrivá, the minister of the sector, with Brussels. And the turmoil in some prices, such as those of energy, has received palliative treatments from the public sector. This also explains why the economy has avoided recession and public revenue is going like a rocket, which gives the Spanish Government more room to maintain its policy.

In these conditions, the meaning of the stories is reversed. Sánchez feels comfortable talking about the economy, and Feijóo, who just over a year ago expected him to be one of his workhorses, tends to talk more about politics.

The great unknown, financial cyclones aside, is the effect of the sustained increase in the consumption basket, clearly out of control and with a very harmful impact on the living conditions of a very broad spectrum of the population. These are increases, 16.5% in March, much higher than the general price index and will probably mark a new upswing this April. And there are still many months left until the day scheduled for the general election.

It seems unlikely that other issues, such as the transfer of the headquarters of the Ferrovial de Rafael del Pino, will have any discernible effects on the behavior of voters. The owners of the company follow their purest economic instincts and the central government expresses its displeasure at an escape that, if not covered, can end in bloodshed. But not because Spain is Bolivarianizing, but because the economy is thinking of making another leap from concentration within the framework of each State to centralization on a global scale. Madrid can go from dreaming of being the capital of Latin America to waking up in the nightmare of losing its business headquarters, due to transfer or acquisition, in a world that is too big for Spanish capitalism. But that is another matter.