Spain stands out in the European economy but faces limits in its growth model based on immigration

Spain is the bright spot of the European economy. While Germany deals with the malaise of its industry and France faces a political blockade, the Mediterranean country seemed to have found the answer to how to adapt the European economy to the post-pandemic world: gross domestic product is 15% above the levels at the end of 2021 and growing at an annual rate of 2.5%, more than double that of the euro zone. But the decision of the President of the Government, Pedro Sánchez, to call elections that he will be unlikely to win exposes the limits of a strategy based on riding popular currents of opinion and promoting growth through immigration.

The electoral advance, announced by Sánchez yesterday, is largely due to the corruption investigations that affect his wife, his brother and senior officials of his Socialist Party. The president's inability to approve Budgets from 2023 and the recent crisis in Ceuta, where the sharp increase in arrivals from Morocco overwhelmed local authorities, add pressure.

With the Popular Party and anti-immigration Vox rising in the polls, citizen outrage over last month's eviction of 87-year-old Maricarmen Abascal — quickly followed by two emergency decrees that were rejected on Friday — may represent Sánchez's last chance to cling to power.

The elections will test the president's economic commitment to facilitating immigration. Spain's population has increased by approximately 2 million people since 2020, resulting in one million new households. Although the cyclical demand for labor from tourism and agriculture played a role, the Government shortened the procedures to obtain residency, expanded work permits and launched a program to regularize the status of undocumented immigrants that received 1.2 million applications.

The result is that GDP per capita has grown much more slowly than the economy as a whole, while increasing pressure on the real estate market. Social housing barely represents 3.4% of the Spanish real estate stock, and since 2020 the country has only completed half a million new homes in total. Before 2008, this construction volume was achieved in a single year. Sánchez will have a hard time dismantling accusations that immigration contributed to housing prices shooting up 26% in two years.

The housing shortage has fueled anger among Spaniards aged 25 to 34, the group furthest to the left in polls and who now face even greater obstacles in obtaining a mortgage. They are looking for armored rental contracts that compensate for this uncertainty. Sánchez, who has remained in power by changing circumstances from pro-market reformist to progressive activist, can take advantage of that demand.

However, a vast majority of Spaniards are homeowners. Furthermore, the solutions he proposes risk closing the doors even further to younger generations, increasing the appeal of the far right. The fear of being displaced by the anti-immigration Aliança Catalana has already cost them the support of traditional Catalan nationalism, and the parliamentary arithmetic after the elections will only get more complicated.

For a euro zone increasingly lacking economic engines and facing growing concerns about French debt, dismantling the Spanish growth engine would represent yet another problem. But, since its fuel is labor, the boom was never likely to last.