By Andrew Hay
Spanish Prime Minister Jose Luis Rodriguez Zapatero could be fighting to keep his job this year as unemployment nears Depression levels and businesses demand labour reforms which unions warn would trigger a general strike.
If joblessness soars towards the 20-percent-plus levels forecast by the European Commission for next year, analysts think the opposition may be able to muster enough votes to block the 2010 budget and force an early election.
Zapatero's Socialists do not have a majority in Congress and polls show them trailing the conservative opposition Popular Party (PP) for the first time since he entered office in 2004.
"The real test of the government will be at this moment, the test of whether it will continue in office," said economist Mariano Gomez at Madrid's Ortega y Gassett think tank. "It will fight for its future in the next 6 to 7 months of this year."
The 48-year-old prime minister, who until late last year ruled out crisis or recession, will try to restore confidence at the May 12-13 State of the Nation debate by presenting new economic stimulus measures.
But European Parliament elections in June are likely to show the extent of the political damage to Zapatero, amid criticism he failed to prepare for a long-heralded housing collapse.
PACT OR ELECTION
Unemployment has risen faster in Spain than any other developed country — almost doubling in a year to 17.4 percent — and uncovered deep flaws in the construction-based economy.
That has exposed Zapatero to private sector demands — he has called them "blackmail" — to reinvent Spain's job market.
With the European Union's highest rate of temporary contracts and highest firing costs, the region's former job creation motor has gone into reverse, shedding 1.8 million posts in the last year or nearly half of all layoffs in the EU.
Businesses want tax cuts and measures to make it cheaper to hire and fire. But Zapatero has ruled out a labour reform, following threats of a general strike from the main unions.
His pledge has kept a lid on social tension but could give the Popular Party the excuse it needs to block the 2010 budget, a move likely to lead to an early election. With the support of Catalan nationalists, the PP would have enough votes to do this, using the argument that Zapatero's failure to address the crisis was damaging the nation.
Sniffing blood after five years in opposition, the PP is in no mood to enter a mooted anti-crisis pact with the Socialists.
"I only see two alternatives, they (the Socialists) reach a pact with the Popular Party or they take a decision to hold early elections," said sociology professor Juan Diez Nicolas at Madrid's Complutense University.
SHORT-TERMISM
Until last year, Zapatero focused most of his energy on social issues ranging from legalisation of same sex marriages to compensation of Spanish Civil War victims' families.
Surveys now show Spaniards' greatest fear is unemployment as observers like the International Monetary Fund warn of a lost decade without major structural overhauls.
The European Commission expects Spain to be the last economy in the European Union to exit recession, probably in 2011, due to the double whammy of the global crisis and housing slump.
To contain social tension, Zapatero has launched one of Europe's biggest stimulus plans, led by an 8 billion euros ($10.72 billion) public works program to create 400,000 temporary jobs .
His preference for short-term measures has alienated centrist parties and former Socialist allies like Bank of Spain Governor Miguel Angel Fernandez Ordonez, who fear they will swell deficit and debt levels without restoring growth.
The European Commission expects Spain's budget deficit to nearly triple to 9.8 percent of GDP in 2010 while public debt rises to 62 percent of GDP from 39.5 percent last year.
Friction with the CEOE business lobby broke into the open this week as its leader was caught by an open microphone saying problems in Spain were due to "the Zapatero years", not the global crisis.
Zapatero has in the past made sharp policy shifts when events dictated, such as ending talks with Basque rebels ETA, and some expect him to do the same on economic and labour market reform.
"He has strong political intuition," said Jose Carlos Diez of the Intermoney consultancy.
Others see little chance he will change course and, after blaming Spain's problems on the global crisis, expect him to bunker down and wait for recovery from abroad.
"Short-termism is the name of the game for the foreseeable future," said history professor Charles Powell at CEU San Pablo University in Madrid.
