José María Aznar

Aznar in June 1996, soon after being sworn to office as Prime Minister

The Aznar Government maintained the commitment of the previous government to join the European Union's single currency and showed itself willing to take political risks in order to meet the requirements for membership. In the middle of 1996 it announced a decision to freeze the wages of civil servants in the following year and stood by that decision throughout the fall, despite a series of union-led demonstrations that culminated in protest marches by tens of thousands of Spaniards throughout the nation on 11 December.

The Government, with the backing of regional nationalist parties, passed a strict 1997 budget on 27 December, four days before time would have run out for its approval. The opposition United Left coalition argued that the spending cuts and tax adjustments contained in the budget would hurt the disadvantaged and benefit the rich. The budget aimed to enable Spain to lower its deficit to below 3% of gross domestic product, a requirement for joining the EU's single currency. Some critics note that this wasn't the only way of doing so.

The Government was also forced to back down on a plan to reduce Spanish dependence on its own high-priced coal when hundreds of coal miners blocked highways and demonstrated in November. The miners persuaded the government to adjust a national electricity plan that would have phased out the subsidy of Spanish coal, making it more expensive than imported coal.

Aznar also announced the sale early in 1997 of the nation's remaining minority stake (golden shares) in the Telefónica telecommunications company and the petroleum group Repsol. These golden shares in Telefónica and Repsol YPF, as well as in Endesa, Argentaria and Tabacalera, all presided over by people close to Aznar, have since been declared illegal by the European Union. This marked the beginning of a period of privatizations after the previous PSOE government had nationalized parts of the economy.

Aznar receiving Jordi Pujol at La Moncloa in 1996.

After the PP's first year in office, the goodwill between it and the major nationalist parties in the legislature, Convergence and Unity (CiU) and the Basque Nationalist Party (PNV), appeared to have lost strength. Both parties had enjoyed leverage over the previous PSOE government, and the PNV in particular stepped back from colluding too closely with the government.

Ecological issues came to the fore in Spain during 1998. A vigorous public debate created a new awareness of topics such as environmental pollution and deforestation, and a host of organizations competed to spread the ecological message. The Government, conscious of the political implications of this new concern, was also party to the debate and promised active cooperation. As a reaction against attempts to liberalize the current abortion laws, Roman Catholic groups renewed their anti-abortion campaigns.

The economy suffered the effects of the global recession unleashed by the financial crisis in Asia, and the Economic Ministry reduced its 1999 economic growth estimate from 3.9% to 3.7%. The sharp decline in share prices on the Madrid and Barcelona stock exchanges (on average about 20%) created cause for concern among both business associations and trade unions. The latter voiced their concern about the risk of increased unemployment, which remained around 12.5%. Despite this slowdown, salaries increased by an average of 2.3% that year.

In 1999, the European Union introduced the euro, a major success for Aznar and his government. Steady economic growth and falling unemployment, though the rate exceeded all other EU member states, won the government public support. The Government's credibility was damaged when the PSOE revealed at the end of the year that the ranks of top Spanish civil servants had increased 15% over the previous year despite PP promises to cut the bureaucracy.

Barroso, Blair, Bush, and Aznar in the Azores, March 2003

Spanish voters reelected Aznar in the 2000 general election with an outright majority. The PP obtained 44.5% of the vote and 183 seats.[7] The Spanish electorate's participation was the lowest for a general election in Spain in the post-Franco era.[8]

Spain was one of the fastest-growing economies in the European Union (EU) in 2001, despite inflation nearing 4% and signs of an economic slowdown. However, the government's problems involved politics as much as policies. A number of issues were handled clumsily, including implementation of immigration legislation passed in January and a health scare over low-quality olive oil in July. In the autumn complaints that the government was steamrolling controversial university reforms through the parliament inflamed the opposition.

At the end of the year, students all over the country joined in strikes, demonstrations, and sit-ins, often alongside their rectors and professors. Though still outperforming most of its EU partners, Spain failed to escape the effects of the global economic downturn in 2002. Falling exports, declining domestic consumption, and a sharp drop in tourist revenue helped bring annual gross domestic product growth down to an estimated 2%, the lowest level since 1996.

Aznar with Vladimir Putin, Romano Prodi and Javier Solana in 2002

In addition, rising crime rates and soaring house prices (up almost 50% since 1998) were the object of widespread public concern, providing opposition parties with powerful ammunition against Aznar's government.

The government ran into even deeper trouble in its attempt to reform the unemployment benefit system. A controversial decree-law issued on 27 May introduced new restrictions on entitlement to benefits, making it harder for those receiving welfare to turn down jobs offered by the public employment agency, and phasing out the special subsidy for agricultural workers in the south. The trade unions reacted by calling a 24-hour general strike on 20 June, embarrassing the government on the eve of an EU summit in Seville. The stoppage proved a largely unexpected success. On 7 October, just two days after a major national demonstration in Madrid to protest against the law, new Labor Minister Eduardo Zaplana announced an abrupt U-turn, accepting nearly all of the unions' demands and leaving only the reform of the subsidy for farm laborers on the statute book.

Aznar and George W. Bush at the Bush Ranch in Crawford, 22 February 2003

A major secondary-education bill also proved controversial. Intended to raise educational standards, the proposed Law of Quality lowered the age at which students were streamed into different educational tracks, allowed special schools in the state sector to select on merit, and introduced a new secondary-school-leaving exam. Opposition to the bill's potential socially divisive effects and inadequate funding for the public educational system brought student organizations, trade unions, and left-wing parties into the streets as the bill was being debated in the parliament in October.

Amid the relatively stagnant European economies, estimated GDP growth of 2.3% made Spain the second fastest-growing economy in the European Union in 2003. Continued expansion enabled the Spanish government to proclaim proudly that it would end the year with a budget surplus for the first time in recent history. However; inflation was running at 2.7% (compared with the EU's 1.7%) in November, unemployment stood at more than 10%, almost one-third of the workforce had temporary contracts, and housing prices were spiraling. The European Commission shared analysts' concerns that a hike in interest rates or increased unemployment could send housing prices tumbling, with disastrous consequences for families burdened with unprecedented levels of debt and for the financial institutions that had given them loans.

After six years of relative political calm, when political debate was dominated by a consensus within the ruling party on economics, regional nationalism, and terrorism, several issues arose which polarized Spanish public opinion. Like UK Prime Minister Tony Blair, Aznar actively supported the United States' War on Terrorism, despite public opposition. Aznar met with Bush in a private meeting before 2003 invasion of Iraq to discuss the situation of in the UN Security Council. El País leaked a partial transcript of the meeting. The government handling of the wreckage of the Greek Prestige tanker near the Spanish coast, which resulted in a major ecological disaster, also became a divisive issue.

Aznar next to Mariano Rajoy and Rodrigo Rato during an event of the campaign for the 2004 general election.

He actively encouraged and supported the Bush administration's foreign policy and the US invasion of Iraq in 2003.[9] He defended it on the basis of secret intelligence allegedly containing evidence of the Iraqi government's nuclear proliferation. On 30 January 2003, Aznar signed The letter of the eight supporting US. policy on Iraq.[10] The majority of the Spanish population, including some PP members, were against the war. Spain's major cities were the scene of the largest street demonstrations ever seen in the country as a result of the government's participation in the invasion. Aznar lost some support from those who had voted for the PP in 2000. On a live TV interview aired on the public station while demonstrations were taking place on the streets, he asked the Spanish people to take his word assuring there were weapons of mass destruction in Iraq, of which he had evidence. This is now regarded as incorrect.[11][12]

In January 2004 Aznar called a general election and designated his successor as candidate, Mariano Rajoy, sticking to a pledge of not seeking office for a third term. Despite political tensions, polls suggested that the People's Party was set to win a third consecutive election on the strength of the economy. An opinion poll carried out by the government-run CIS (which had estimated that 92% of the Spanish people did not support the War in Iraq) in February 2004 estimated that the PP would win an election with 42.2% of the vote while the PSOE would only get 35.5%.[13]

Three days before the 2004 general election, 10 bombs killed 191 people in the 11 March 2004 Madrid train bombings. Initially, the government and the opposition[14][15] stated publicly that it was possible the bombings may have been the work of ETA. However, the PP government continued to blame ETA even after evidence that the attacks may have been the work of an Islamist group emerged, having the Minister of Foreign Affairs Ana Palacio instruct all Spanish diplomats to place the blame on ETA at every opportunity.[16][17] The public perception that the government hid information from the general population gave rise to a public outcry. Two days after the Atocha bombings, demonstrations took place across Spain demanding news from the investigation, where chants such as "We want the truth before we vote" and "Who is responsible?" were heard.[18][19] Three days after the train bombings, the opposition PSOE won the elections. The subsequent investigations held by a Parliamentary Committee were characterized by bitter partisan exchanges between the different political parties, with dispute over who may have been responsible for the bombings. Aznar appeared before the Committee in November 2004 and declared his belief that the authors of the bombings were not to be found "in faraway deserts or remote mountains."[20] Aznar said in 2006 that he thought that the attacks were not exclusively perpetrated by Islamists.

In October 2008, on the occasion of a visit by the Czech President Václav Klaus to the Spanish capital, Aznar said that anthropogenic climate change is a "scientifically questionable" theory which had become a religion, and whose followers were "enemies of freedom".[26] These views were similar to those expressed by Klaus in his book Blue Planet in Green Shackles, which was published in Spanish by FAES.[27] Aznar's speech caused some puzzlement, as his government had been a signatory to the Kyoto Protocol in 1998, and it appeared that he had subsequently changed his mind about climate change. In 2009 Aznar was due to speak to a Heartland Institute conference, which was billed as the "world's largest-ever gathering of global warming skeptics". He withdrew at short notice, and in the absence of a public explanation there was speculation that he did so in order to spare his party embarrassment.[28] The People's Party distanced itself from the environmental views of Aznar, classing him among a "sceptical minority" within its membership. However, some People's Party politicians favored Aznar and wanted a public debate on climate change, most notably Esperanza Aguirre.[29]

In 2010 it was reported that Aznar would chair the Advisory Council of the Global Adaptation Institute, a new body concerned with adaptation to climate change.[30]

In 2010, Aznar founded the Friends of Israel Initiative, with the stated goal to "counter the attempts to delegitimize the State of Israel and its right to live in peace within safe and defensible borders". Referring to the ill-fated takeover of the Mavi Marmara by Israeli commandos, Aznar said in 2010 that the world must support Israel because "if it goes down, we all go down". He said that "In an ideal world, the assault by Israeli commandos on the Mavi Marmara would not have ended up with nine dead and a score wounded. In an ideal world, the soldiers would have been peacefully welcomed on to the ship."

He criticized Turkey for placing Israel "in an impossible situation" in which it would have to either give up its security or face world condemnation. Aznar concluded that Israel is the West's first line of defense, and must be protected.[31] In 2014, in an address at the British House of Commons Aznar said Israel is needed by the European Union. He said his report recommends that due to its Western culture and the benefits it brings the European Union, Israel should become a full member of the EU without pre-conditions.[32]