Rajoy and Rubalcaba agreed yesterday to the basic content of a pact that will strengthen Spain's position before a meeting with the EU next Thursday in Belgium. It is very likely that other political groups headed by the Basque National Party, Convergence and Union and the Union, Progress and Democracy parties will accept the document, which has served to reassert the government's politcal changes as it struggles to gain parliamentary support.
The pact represents a swift reversal in opinion about a possible VAT increase and pushing back the national retirement age. These are two non-negotiable issues for Rubalcaba, who is clearly sympathizing with major union leaders. Rajoy's announced in front of Congress that the government will give up adopting these two unpopular measures, hiding the ins and outs of a temporary fix that has a small chance of long-term success.
The agreement focuses on several aspects: a Europe-wide plan to improve employment for young workers, investment in growth opportunities using EU funds, and a unified banking system. Each of issues are very important, but is less critical than the real problems undermining Spain's economy such as Public Administration reforms, fiscal reforms that Montoro thinks will ease pressures on the middle class or a new model for the Social Security system.
We should ask the EU for a two-year extension sooner rather than later in order to avoid harder solutions in the future. Because precious time is running out, and the country's health is at stake.
