Spain's Parliament on Tuesday narrowly confirmed Socialist leader Pedro Sánchez as prime minister for another term, paving the way for the country's first-ever coalition government since its return to democracy in the 1970s.
Sánchez, who has stayed on as a caretaker premier since inconclusive elections last year, won 167 votes in the 350-seat assembly compared to 165 against, with a decisive 18 abstentions by Catalan and Basque separatist lawmakers.
He plans to form a minority coalition government with left-wing party Podemos ("We Can") this time around, in what would be the first coalition government in Spain since the country returned to democracy following the death of longtime dictator Francisco Franco in 1975.
Podemos' pony-tailed leader Pablo Iglesias broke into tears after the results of the vote were announced and his lawmakers chanted the party's slogan "Yes we can!."
"A period of moderation, progress and hope opens up today," Sanchez tweeted shortly after the vote
On Sunday, Sánchez lost a first attempt after falling short of the required absolute majority of 176 seats in a first confidence vote in Parliament.
Spain, the eurozone's fourth-largest economy, has been in political gridlock without a proper government for most of the past year after two inconclusive elections in April and November.
Sánchez's Socialists won the November 10 poll but were weakened, taking 120 seats – three fewer than in April – in an election which saw upstart far-right party Vox surge into third place.
Sánchez quickly struck a deal with Podemos, which has never governed nationally, to form a coalition government despite having previously said that such a tie-up with the far-left party would keep him awake at night.
The two parties are pledging to lift the minimum wage, raise taxes on high earners and large businesses, and repeal elements of Spain's controversial 2012 labour market reforms that made it easier to fire workers – measures which business leaders warn will hurt job creation.
With the two parties' combined total of 155 seats still falling short of a majority, Sánchez also secured the support of several smaller regional groups as well the abstention of Catalan separatist party ERC's 13 lawmakers and those of Basque separatist party Bildu's five MPs.
As part of his deal with the ERC, Sanchez agreed to open a formal dialogue with Catalonia's separatist regional government on the future of the wealthy northeastern region, and to then submit the results of the talks to Catalan voters.
The political situation in Catalonia remains in flux following a 2017 independence referendum which Madrid declared unconstitutional.
The Catalan independence push triggered Spain's most serious political crisis post-Franco.
Spain's centre-right parties and Vox accused Sánchez of putting national unity at risk through his pact with the Catalan separatists.
The leader of the main opposition conservative Popular Party (PP), Pablo Casado, warned ahead of the vote that Spain was set to have "the most radical" government.
"Surrendering to the worst radicals may make you prime minister but you will not be able to govern," Casado said during a rare weekend session of parliament called to debate Sánchez's bid to be reappointed premier.
Sánchez's narrow margin for victory led Podemos lawmaker Aina Vidal, who is in severe pain with cancer and had to miss the weekend vote, to turn up for Tuesday's crucial session despite her illness.
"The political landscape remains tricky," ING analyst Steven Trypsteen said. "The new government [is] ... a minority government, the Catalan tensions could flare up again... and the fiscal situation makes it difficult to increase spending a lot."
Until 2015, Spain had essentially a two-party system pitting the Socialists against the PP but the rise of new parties has led to a more fragmented parliament that has made it harder to form a government.
Sanchez came to power in June 2018 after ousting his PP predecessor Mariano Rajoy in a no-confidence vote but he was forced to call elections in April after Catalan separatists including the ERC refused to back his draft budget.
What comes next in Spain?
Spain's new coalition government wants to raise taxes for the rich, roll back a reform of labour market laws, and raise salaries. The two parties argue the measures are needed to fight economic inequality but company lobby group CEOE has warned that their economic programme is "close to populism" and will have a "very negative" impact on job creation in the country, the eurozone's fourth-largest economy.
The following are some key measures proposed by Spain's new government:
- Labour market -
The coalition has vowed to roll back some changes introduced by Spain's previous conservative government in 2012 during the height of the country's economic crisis to make the labour market more flexible by making it easier and less expensive to fire workers. It wants to eliminate or severely restrict the reform's more controversial measures such as the authorisation to fire workers on sick leave or unilaterally change a job contract. Rajoy credited his labour market reform for a sharp drop in Spain's sky-high unemployment rate but critics say it has caused salaries to fall and led to a rise in unstable, temporary work.
- Minimum wage hike -
Sánchez's previous government rose the monthly minimum wage by 22 percent to 1,050 euros (US$1,175). His new coalition government wants to increase it further by the natural end of the legislature in 2024 to 60 percent of Spain's average monthly salary which currently stands at 1,970 euros.
- Pensions -
Pensions will once again be linked to inflation, which has not been the case since 2014.
- Higher taxes -
The government wants to raise income taxes on those earning more than 130,000 euros per year, and set a minimum corporate tax rate of 15 percent, while banks and energy firms will have to pay 18 percent. The goal is to prevent companies from using tax deductions and loopholes from paying far less than the current official corporate tax rate of 25 percent. Spain's largest union, CCOO, has said the government's overall programme is "positive" but criticised a "lack of ambition" regarding taxes, recalling that Spain's tax rates are lower than the European average.
- Rental market -
The coalition wants to give mayors of cities struggling with "abusive" rent hikes to temporarily impose rent ceilings. Madrid and Barcelona have in recent years seen rents skyrocket, in part due to the rise in popularity of renting homes to tourists on home-sharing platforms such as Airbnb which has decreased the number of properties available for longer-term rental. The proposal has sparked an outcry from the real -estate sector which argues it would discourage investment in properties built with the goal of being rented out, which would worsen the housing shortage.
- Debt reduction -
The coalition agreement between the two parties vows to "respect the mechanisms of budget discipline" without setting a specific target for the reduction of Spain's debt, which stands at nearly 100 percent of the country's economic output. Last year the European Commission chided Spain for its slow pace of debt reduction.