Economic and Political Challenges for the Spanish Government

Spain's largest unions called a nationwide general strike March 29 to protest labor reforms by the Spanish government. Workers, students and the unemployed held demonstrations across the country, and there were reports of isolated incidents of violence, particularly in Barcelona.

The strike represents just one of the political, social, economic and international challenges Prime Minister Mariano Rajoy's government is facing since his Partido Popular (People's Party) won an overwhelming electoral victory in November 2011. To regain political initiative, Madrid likely will decide to soften its focus on fiscal discipline, which will lead Spain to breach its deficit target for this year and likely the next. Spanish leaders will use the threat of financial contagion to other countries, such as Italy or Portugal, as a tool to avoid sanctions and receive financial support from the European Union. Spain's situation comes amid what Stratfor sees as an EU-wide trend of relaxing fiscal discipline.