As Europe frets about the impact of the United Kingdom’s exit from the European Union and the world fidgets over the unpredictability of President Donald Trump in Washington, few countries are facing the immediate future more nervously than Spain.

Spain is under pressure from inside and out1

Demonstrators protest against Spanish Prime Minister Mariano Rajoy, Madrid, 29 October 2016. (EPA/Kiko Huesca)

The international uncertainty coincides with a time of political fragility in Spain, with the country now in the hands of a six-month-old minority government after almost a year of political and diplomatic deadlock following two inconclusive national elections.

The Spanish economy is gradually recovering after years of decline, financial crisis and soaring unemployment following the world financial crash of 2008. Unemployment is down but still around 20 percent (42 percent for the under-25 age group).

The conservative Popular Party (PP) government under Prime Minister Mariano Rajoy, in power since 2011, attributes its successes to a program of harsh austerity.

But this brought thousands out onto the streets in protest and caused upheavals in the political scene that led to last year’s deadlock — and made complications in the world order more unwelcome.

A hard “Brexit” could punish the Spanish economy.

The UK’s “Brexit” from the EU seems certain to have a significant impact on the Spanish economy, with trade, business, tourism and migration policy affected. Even the careers of Spanish footballers playing for British clubs could be at risk.

The UK is Spain’s main investment target, its number one tourism market and the top destination for Spanish emigrants. About one million UK citizens live in Spain at least part-time, while some 300,000 Spanish citizens live in the UK.

A recent Spanish government report said a so-called “hard” Brexit – where EU-UK divorce negotiations produce no compromise deal on future relations – could cost the Spanish economy one billion euros in lost exports.

The report, leaked to the Madrid newspaper El Pais in March, said Spain’s gross domestic product (GDP) could fall sharply and the government would have to increase substantially its contributions to the EU budget.

“America First” could hit Spain hard.

Outside Europe, the United States is Spain’s largest trading partner, with the balance of trade last year in Spain’s favor. Any steps by Trump to enforce his protectionist “America First” policy could hit Spain hard. Spanish companies with major investments in Latin America, notably Mexico and Cuba, could suffer if relations worsened.

The United States has two military bases in southern Spain that contribute to the local economy. Trump has signaled that he wants to reduce U.S. intervention overseas, which could mean a cut in military staff abroad.

Recent international tension over Russia, Syria, North Korea and cyber-espionage appears to have overridden Trump’s view of the North Atlantic Treaty Organization as “obsolete.” But he remains firm in his demand that all members pay their fair share to the military alliance.

Spain would have to dig deep to come close to meeting an agreed alliance target of two percent of GDP.

Restless Catalonia

The Madrid government also faces unrest at home, with the leadership of Catalonia, the most prosperous of the country’s 17 semi-autonomous regions, threatening to call a referendum in September on independence.

The Spanish constitution prohibits any independence vote, and in March former Catalan leader Artur Mas was prosecuted and barred from holding public office for two years for staging a non-binding referendum in 2014. Catalan officials say the vote in favor of independence then was 80 percent, although voter turnout was under 50 percent.

Catalonia, in Spain’s northeast corner, with its capital Barcelona, has its own language and culture and has long campaigned for greater autonomy. The UK’s referendum vote to leave the EU and subsequent renewed Scottish Nationalist pressure for independence have fueled the Catalan fire.

Complications multiply

So there is plenty for the Spanish government to worry about. And, to add spice, key parts of the European political landscape look ripe for change.

The result of France’s presidential election will be determined on May 7, but the candidates for the two main parties that have run the country for nearly 60 years were defeated in the first round of voting on April 23, so change is assured.

On June 8, the UK votes in a snap election expected to strengthen the Conservative Party’s grip on power ahead of Brexit negotiations.

Germany’s federal elections in September look tight between Chancellor Angela Merkel’s Christian Democrats and their current coalition partners, the Social Democrats.

Extended political paralysis

Domestically, after months of debilitating political deadlock, Spain has a government that can function, but it’s under constant pressure from parties whose support it needs to get legislation through.

It’s been a rocky few years in Spanish politics.

In 2011, Rajoy and the PP won a landslide electoral victory, helped by pledges to restore the economy. But the mix of austerity and unemployment provoked protests across the country and, as elections loomed in December 2015, new, angry players emerged on the left and center-right.

At the 2015 polls, the PP again won the most seats but far short of a parliamentary majority. The era of politics in which the PP and Socialists (PSOE) had essentially taken turns heading democratic governments that followed the death of dictator Generalissimo Francisco Franco in 1975 was at an end.

Last June, with government business at a standstill, yet another general election was held. The PP won a few more seats but effectively nothing changed.

After the dour and widely unpopular Rajoy lost a parliamentary vote in September, it looked as though Spain was bound for a third general election in a year. A nervous Foreign Ministry produced a report decrying the extended political paralysis.

“The continuation of caretaker government is having ever graver consequences for our international standing, caused by the institutional blockage which presents Spain as a permanent lame duck,” the report, seen by El Pais, said.

More than 40 international treaties and directives were stalled, awaiting ratification by parliament. The ministry noted that Rajoy had missed two summits with Germany, France and Italy, which had formed a nucleus to guide the future of the EU after Brexit, “with regular meetings to which Spain should be invited.”

A messy political scenario

The prospect of another, probably futile, election appalled even a majority of the Socialists to the point that they forced out their intractable leader, Pedro Sanchez, in early October and shortly afterwards agreed to abstain when Rajoy returned to parliament.

With the 85 PSOE voices silent, the prime minister was elected to a second term by a simple majority.

So government business resumed after 11 months of deadlock. But Rajoy heads a minority government and is under pressure to speed up a string of financial and social reforms and take action against alleged endemic corruption within the PP. Rajoy himself has been called as a witness in a corruption trial involving PP parliamentarians.

It all amounts to a messy political scenario, and commentators believe the PP might consider calling a new election as early as this month, which would be constitutionally possible.

Electorally bruised Spaniards might find some relief in the thought that in July, King Felipe and Princess Letizia are to make the first state visit to the UK by a Spanish monarch for 31 years – just ahead of President Trump.

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Robert Hart was a correspondent and regional editor for Reuters for more than 35 years, reporting on the Vietnam War, West Germany during Chancellor Willy Brandt’s Ostpolitik and as bureau chief in Spain for five years in the 1990s. In between he was Asian News Editor based in Singapore and Latin America Editor, based in Buenos Aires during the military “dirty war” of the late 1970s. You can read Hart’s recollections about his assignment to Vietnam in our series on the 1960s.

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