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Mariano Rajoy risks Brussels showdown with tax-cut vow

Spain’s Mariano Rajoy is promising a fresh round of tax cuts if he is re-elected prime minister next month, risking a showdown with Brussels over Madrid’s chronic budget deficits as he courts voters eager to shrug off a long era of austerity.

“We raised taxes at the start of our term in office, and we lowered both income and corporate tax in 2015. If tax revenues continue to rise, as they are doing now, we can plan another tax cut,” Mr Rajoy told the FT in an interview. Spain’s leader added that he was once again eyeing a cut to both corporate and income tax.

The promise is intended to whip up enthusiasm for Mr Rajoy’s campaign, with a June ballot approaching after an inconclusive December election where his Popular party finished first but lost so many seats it was unable to cobble together a parliamentary majority.
But the vow will raise concerns in Brussels, where the European Commission is due on Wednesday to consider starting sanction procedures against Spain for once again running an excessive budget deficit. Spain’s budget shortfall is expected to hit 3.9 per cent of national output this year, far above the EU ceiling of 3 per cent that Madrid has promised to get below.

Mr Rajoy said his government remained committed to bringing its deficit into line, but suggested a tax cut was compatible with hitting the EU-agreed target.

“Last year we cut income tax and tax revenues still went up,” the prime minister said, adding he had made progress in reducing the deficit, which stood at a eurozone high of 10.4 per cent in 2012. “We lowered the deficit by 4.3 percentage points in four years, even though we spent two years in recession . . . No one can say Spain is not willing to comply with the rules of the game and do things well.”

Spain goes to the polls on June 26, six months after an inconclusive general election that saw both Mr Rajoy’s PP and the opposition Socialists lose millions of votes to political newcomers on the far left and in the centre. Mr Rajoy said he was confident the PP would emerge with another mandate to govern, but warned of serious political risks ahead — including a possible British exit from the EU.

“It would be bad for Europe if the UK leaves and I honestly believe it would be bad for the UK as well,” he said.

Mr Rajoy said Europe had “some bad experiences with referendums” and that he was in favour of using plebiscites only sparingly. “We have a representative democracy, and that means that people elect those who should govern and those who govern take the decisions . . . Sometimes calling a referendum means passing on responsibility to everyone else.”

Mr Rajoy said Madrid would adopt a “constructive” approach in any post-Brexit negotiations between London and the EU, but insisted it would be wrong to expect an easy transition. “This would be a dramatic rupture. It won’t be easy.”

The Spanish leader promised a similar approach in handling the other political flashpoint in Europe — Greece and its campaign to win debt relief from its creditors at a meeting of finance ministers next week. “I said in the past that I don’t like debt relief. But we will be constructive as long as Greece makes clear that it is ready to put its public accounts and its economy in order.”

Mr Rajoy has had a tense relationship with Alexis Tsipras, the far-left Greek prime minister who has close ties to Spain’s opposition Podemos party. Asked whether Mr Tsipras had made progress, Mr Rajoy replied: “He has an arduous task ahead of him.”

- Rajoy pins hopes on campaign agenda.

Spain’s acting prime minister outlined his priorities should he be re-elected as the country prepares for repeat polls, writes Tobias Buck. They are:

Job creation: Pledge to create 2m new jobs over the next four years if re-elected, in particular in export-focused industrial sectors.

Tax cuts: Promise of further cuts to income and corporate tax, which Mr Rajoy says will stimulate growth.

Deficit: Bring Spain’s deficit back below 3 per cent of GDP. Last year it stood at 5 per cent.

Education reform: Major overhaul promised, after numerous failed attempts by previous governments to improve the system. Focus on vocational training.

Catalonia: Mr Rajoy adamant he will not allow Catalonia to secede. “We can talk about everything, except the national unity of Spain,” he says.

- Invisible Man Mariano Rajoy makes his presence felt.

Spain’s acting premier is confident he will see off political newcomers as repeat elections loom

For much of this year, Mariano Rajoy has been the Invisible Man of Spanish politics, watching and waiting while his rivals worked to oust him from power.

He looked on while other party leaders struggled — and ultimately failed — to form a new government in the wake of last year’s inconclusive general election. Now, with a repeat ballot looming in June, he is ready to break cover.

In an interview with the FT at his residence outside Madrid, Spain’s acting prime minister lays out his plans for another four-year term, promising 2m new jobs as well as tax cuts and an overhaul of the public sector.

He brushes aside the challenge from Spain’s political newcomers, including the anti-establishment Podemos party. Voters, he argues, will choose his “experience” and “moderation” over political rupture. He has no intention of making way for a younger leader.

“My job,” he says, “is only half done.”

When Mr Rajoy took office in late 2011, he inherited a country deep in recession, with a public deficit of 9.3 per cent and a simmering banking crisis that would explode only six months later. Today, structural problems remain — not least an unemployment rate of 21 per cent — but Mr Rajoy trumpets his government’s economic achievements: Jobless numbers are falling, and the economy continues to grow at a brisk pace — despite the political uncertainty.

“Spain has overcome the threat of bankruptcy. It is growing and creating jobs. Now we have to consolidate the recovery. I feel good. I feel motivated. And I have experience . . . I think Spain needs experience at this moment,” he says.

The latest polls predict that Mr Rajoy and his centre-right Popular Party will emerge as the biggest bloc in parliament once again, and could even win more seats than in December. But an absolute majority seems out of reach. How then to break the impasse?

Mr Rajoy would dearly like a German-style grand coalition with the centre-left Socialists, even though the Socialists have spurned him. “A grand coalition would be the best thing for Spain,” he says. “We would be many. We would have a majority. We could push through reforms. And we could work together at the European level.”

He dismisses “the new parties that are springing up everywhere” — from Beppe Grillo’s Five Star movement in Italy to Ukip in Britain. He reserves special scorn for Podemos, a supposed practitioner of new politics that Mr Rajoy rejects as “a 19th century party”.

Another Spanish upstart, the centrist and pro-business Ciudadanos party, is widely regarded as a natural coalition partner for the PP. The hitch is that Ciudadanos says it will not back a PP-led government while Mr Rajoy is in charge. Would he, for the sake of political stability, step aside? His answer is unequivocal. “What is in the national interest is to respect the wish of the people. It is rather curious that a party with 40 seats in parliament [Ciudadanos] tells a party with 123 seats [the PP] to get rid of its leader.” Besides, adds Mr Rajoy, “I won the election”.

Whatever the shape of the next government, his plans for a second term come with a surprisingly American twang — and a story about a recent encounter with a successful Spanish entrepreneur.

“He started his speech by saying: ‘Ladies and gentleman, I have been bankrupt three times.’ I thought that was a stupendous message. Don’t give up and don’t wait for the state or the government to solve everything for you,” he enthuses.

Mr Rajoy insists it is “not the state that creates jobs and wealth”, and he wants to inject “more freedom into the economy”. Low-key and lacking in charisma, such messages make him nevertheless sound a little like former US president Ronald Reagan. “I don’t have much in common with Ronald Reagan,” the prime minister replies, deadpan. “But he was not exactly a bad president.”

Not everyone in Spain agrees with Mr Rajoy’s assessment of the economy — let alone his prescriptions to restore it. Yet his greatest political weakness is a popular revulsion at corruption that has nourished parties like Ciudadanos and Podemos. Since early 2013, when the PP was rocked by revelations of a slush fund, corruption scandals have prompted a wave of resignations and arrests, as well as the public disgrace of high-profile party figures. As PP leader during the period, Mr Rajoy has drawn criticism from all sides.

Spain’s prime minister, however, does not do repentance. “My party is not a corrupt party. There were some people [inside the party] who did what they shouldn’t have done. But they have all been forced out already.”

Mr Rajoy faces another vexing political challenge in Catalonia. The prosperous northeastern region has experienced a sharp rise in separatist sentiment in recent years, and is governed by a cabinet openly committed to independence. That demand has so far met implacable opposition from Madrid, and will continue to do so. “We can talk about everything [with the Catalan leadership] — except the national unity of Spain,” says Mr Rajoy.

On Catalonia, as on other matters, Mr Rajoy has been accused of inaction. Some refer to him as “el hombre que siempre espera” — the man who always waits for something to turn up, like a Galician version of Charles Dickens’ Mr Micawber.

But his wait-and-see tactics have often paid off.

“If you govern you have to be clear about two things: the first is your priorities, to distinguish between what is important and what is not. The other is to manage time,” he remarks.

In his own case, “managing time” clearly means knowing when to act and when not to act, when to leave the field to his rivals, when to step up — and, finally, when to step aside. The moment of his departure, he insists, has not yet arrived.

In fact, Mr Rajoy says he has started rejuvenating his party, appointing a string of younger leaders to important posts. For the moment, though, there is no one to take his place. Written off a thousand times, he seems pleased to prove the obituary writers wrong. “I don’t have a natural successor,” he says with a broad smile. “And I will tell you something else: sometimes it is no bad thing not to have a natural successor.”

(Lionel Barber, Tobias Buck, Financial Times)