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SPAIN: Ruling coalition stronger than it looks

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As expected, the Socialist Workers' Party (PSOE) and far-left Unidas Podemos reached an agreement on the draft 2022 budget on 5 October, which the government is expected to approve and send to the Congress of Deputies (lower chamber) in the coming hours. While it remains unclear whether the government will be able to obtain parliamentary approval for next year's accounts, the coalition is likely to stay in power until the second half of next year at least.

Prime Minister Pedro Sanchez has obtained Podemos' consent by offering a package deal that includes the approval of a new housing bill. Given Podemos' young electorate, the party has been keen to adopt measures to lower rents, especially by targeting large landlords. The compromise reached with PSOE will see the introduction of rent controls on properties owned by large landlords in high-demand areas, as well as the provision of tax incentives to small landlords to cut rent prices. However, the application of the new regulatory framework will be contingent on a final decision by regional governments, as housing policy is are split between the different government levels. The Sanchez administration is also planning to launch a EUR 250 monthly grant to support young low-income individuals with their rent payments.

Regarding the draft budget specifically, Sanchez also agreed to implement a 15% minimum corporate tax rate for big companies, in line with the international agreement that is currently being discussed at the OECD. While Economy Ministry Nadia Calvino had previously signaled that the government would wait for the final global deal, Podemos' pressures have led Sanchez to bring forward its implementation.

As with last year's draft accounts, the government will now have to secure parliamentary backing for the budget, as the ruling coalition only has 155 MPs in the 350-seat Congress of Deputies. The Republican Left of Catalonia (ERC) remains the key actor in this regard. In principle, ERC has an incentive to cooperate with the PSOE-Podemos coalition to keep extracting concessions from the central government. However, a change of heart from the secessionists cannot be discarded, given the ongoing fractiousness of Catalan regional politics.

Regardless of the budget process, the PSOE-Podemos coalition is likely to remain in power for the foreseeable future. If Sanchez cannot get the accounts passed in parliament, the government will most probably roll over last year's budget. As previously explained, neither PSOE nor Podemos has an incentive to go to elections anytime soon, given their poor poll numbers. Moreover, the ongoing record-high energy prices and the expected good growth figures for next year create an incentive to delay elections for as long as possible.

In the coming months, a signpost to watch is whether an early election will be held in the Andalusia region, currently governed by the People's Party (PP) and Ciudadanos. The party leadership sees the PP's good electoral prospects in the region as an opportunity to generate electoral momentum at the national level. However, early elections will likely be contingent on whether the regional assembly approves a budget for next year. An early election in 2022 would provide a good bellwether of the relative strength of PP and PSOE ahead of an eventual nationwide poll.

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SPAIN: Ruling coalition stronger than it looks

As expected, the Socialist Workers’ Party (PSOE) and far-left Unidas Podemos reached an agreement on the draft 2022 budget on 5 October, which the