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Spain's government has been dysfunctional for 9 months — and the country's getting by fine

Spanish acting prime minister and leader of the Popular Party (PP) Mariano Rajoy smiles at the end of a political meeting in Vigo, northwestern Spain, on September 23, 2016, ahead of the September 25 Calician regional election.
MIGUEL RIOPA/AFP/Getty Images

Spain has emerged as Europe’s unlikely economic star, boasting a growth rate that’s twice the regional average. But you won’t find anyone from the Spanish government taking a bow.

That’s because there is no Spanish government — or more precisely, there’s only a caretaker government with tightly limited powers. Two national elections since last December have produced parliaments so fragmented that Spain’s bickering political parties haven’t been able to agree on a prime minister.

The conservative Popular Party got the most votes in both the December and June ballots, but fell far short of a majority. Appalled by a series of corruption scandals involving the Popular Party, the opposition in parliament has refused to reelect the party’s leader, Mariano Rajoy, who had served as prime minister from 2011 to 2015.

The stalemate has left Rajoy carrying on as acting prime minister since December. But he can’t propose legislation, sign international agreements, or make appointments to fill government vacancies.

None of that seems to be fazing Spaniards. They are learning to live without a government — and they seem to like it just fine. Only 2.3 percent of respondents in a July poll by Spain's Center for Sociological Investigations considered the lack of government the country's major problem.

Even more surprising, that number has been getting smaller as people get more accustomed to life in political limbo, the survey found. “We’ve done very well without a government, or better put, with an interim, decaffeinated government,” economist Gabriel Calzada wrote in a column in the business daily Expansion not long after the second inconclusive election. Indeed, noted Calzada, 2016 started with “perhaps the best half year of Spanish politics in at least the last decade.”

Some Spaniards have decided the impasse is best played for laughs. The “Fake Mariano Rajoy” Twitter account identifies him as “Acting prime minister. Waiting to see what happens.” One parody tweet made light of Rajoy’s claim that the political standoff threatened health and pension programs, which he had scaled back during his first term. “The lack of a government is impeding me from applying the social policies that I never applied,” the tweet said.

Besides the ambiguity about the national government, there are now two different factions claiming control of the Socialist party, the main Spanish opposition. This week, dissidents within the party launched a revolt against Socialist leader Pedro Sanchez, who has been implacable in blocking Rajoy’s effort to form a government.

Sanchez says he remains in control, but the dissidents assert he now lacks any authority. A dissident leader who came to Socialist headquarters Thursday to take charge of the party was kept waiting in the lobby for two hours before being turned away by Sanchez’s loyalists.

If dissidents succeed in ousting Sanchez, it’s possible new Socialist leadership might drop its opposition to Rajoy heading the government, thus averting the need for Spain to hold a third national election in December.

Yet the surprisingly smooth sailing of Spain’s economy shows that politics may not always have as much impact on the functioning of economies as we tend to think. Economies operate on their own rhythms, and sometimes they show surprising resilience amid political shocks.

For instance, despite all the dire forecasts for the UK following its vote in June to leave the European Union, the actual economic fallout there has so far been muted, besides the decline in the British pound. Meanwhile, in Turkey, which has endured a failed coup as well as terrorist attacks, a vibrant consumer sector still chugs on. One exhaustive study recently suggested that failed coups don't have much economic impact, though successful ones against democratic governments do cause harm.

For the US, the economy's resistance to political risk has been a blessing during a presidential campaign unlike any other in recent memory. Republican candidate Donald Trump has vowed to uproot some of the fundamental pillars of US global policy, from trade agreements like NAFTA to international alliances like NATO.

While investors have expressed worries about Trump, they don’t seem to be acting on those concerns yet, as the stock market flirts with all-time highs and unemployment dips below 5 percent. If Trump actually wins and begins putting his policies into action, of course, that could change very quickly.

The lack of a government is actually helping the economy

The Spanish economy's 3 percent expansion has been propelled by frisky consumers and strong tourism. But it’s also getting a boost, strangely, from the lack of leadership at the top.

That’s because the political vacuum has provided Spain with cover for widely exceeding deficit targets set by the European Commission, which polices policy in the eurozone but has refrained from penalizing Spain. “Not having a government in the present situation has prevented the commission from being tough on austerity, and this has been good news for Spain,” says Paul De Grauwe, a professor at the London School of Economics.

The commission threatened to levy a fine against Spain in July for exceeding the deficit limit, but held off to give Madrid more time to sort out its leadership crisis. Spain's acting government has promised to balance the budget by boosting revenues from the corporate tax, though it's unclear when and if it can make good on that pledge.

Robert Tornabell, an economist at the ESADE Business School in Barcelona, estimates that Spain is growing a full percentage point or more above what it would be if it were adhering to the commission’s guidelines, due to the stimulus from higher public spending.

Similarly, when Belgium went 541 days without a government in 2010 and 2011 and couldn’t implement harsh budget cuts and tax hikes, its economy grew by around 2 percent with declining unemployment.

Next door in the Netherlands, the government carried out painful cuts affecting health care, public employees, and social services. “There was a strong government and strong austerity and this led to a strong decline in growth in the Netherlands,” De Grauwe says. He adds that the lesson is that, “sometimes strong governments can make big mistakes and caretaker governments cannot make big mistakes.”

For now, Spain's economy is coasting along "on a sort of autopilot that partly depends on tailwinds that are out of Spain's control," says Vincenzo Scarpetta, an analyst with the Open Europe think tank in London. He notes that lower global oil prices are reducing Spain's import bill. Spanish businesses and consumers are also benefitting from European Central Bank policy to stimulate the continent's economy by holding down interest rates.

Why do we even need a prime minister?

The fact that Spain’s economy is growing just fine without a government helps explain why Rajoy is having trouble convincing parliament he’s indispensable and should keep his post.

In the debate preceding a failed vote of confidence in early September, Rajoy warned legislators of dire economic consequences if he wasn’t re-elected. Parliament members scoffed. “Exports and tourism in Valencia have grown in spite of you,” a representative from the citrus-producing region told him.

Rajoy also got an earful from a representative from the Catalonia region, which is battling Madrid for greater autonomy. “Despite having the central government against us, foreign investment has grown in Catalonia in recent months like it never grew,” the Catalan representative said.

It hasn't helped Rajoy's cause that a rash of corruption scandals in his party have left him saddled with an approval rating a tad above 30 percent, the worst of any Spanish party leader. In one of the most damaging cases, Spanish journalists in 2013 published chummy text messages Rajoy sent to the Popular Party's ex-treasurer, who was then awaiting trial on allegations of masterminding an illegal financing scheme.

Others have shifted from slamming Rajoy to trying to nudge all of Spain’s feuding politicians toward a compromise. To underscore how juvenile the government gridlock seems, a YouTube channel specializing in children’s content featured a cartoon allegory of the crisis called “Niñolandia,” or Kiddieland.

Rendering the leaders of the four major political parties as children, the cartoon narrated how “the selfishness of small politicians” was bringing sadness to Niñolandia. The fairy tale had a happy ending. Señor Common Sense, a golden character wearing a bow-tie, descended to a playground and brokered a power-sharing agreement among the four children.

One thing Spaniards are indignant about is paying for a parliament that isn’t getting its work done. One Madrid resident recently launched a Change.org petition calling for legislators’ salaries to be docked until they elect a prime minister. The “No Government — No Pay” petition noted that this year’s two deadlocked legislatures have received around €30 million (about $33.5 million) in pay, as well as extras, like €600,000 (about $672,000) in travel expenses. A member of the lower house earns about €60,000 (about $67,000) a year. So far, 141,000 people have signed the petition.

Other Spaniards have crossed the line from anger to apathy about the political mess. “For a while I changed the channel whenever they came on,” says Miguel Silva, an accountant from Madrid. “But it was impossible to avoid them, so now I just don’t turn on the television.”

Matt Moffett worked for three decades as a Wall Street Journal correspondent in Latin America and Spain.

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