Born in Bilbao on 17 June 1948 to a bourgeois family, son to an engineer of Valencian origin and a cultivated mother daughter of a Jewish physician of German ancestry. His grandfather Isaac Amann was one of the promoters of the Bilbao–Getxo railway. Almunia attended the Jesuit School of Indautxu in Bilbao. He graduated with degrees in economics and law in 1971 and 1972, respectively, from the also Jesuit University of Deusto in Bilbao, and completed follow-up studies at the École pratique des hautes études in Paris, from 1970 to 1971. He also completed a program at the Kennedy School of Government at Harvard University for senior managers in government in 1991. He was an associate lecturer on employment and social security law at the University of Alcalá de Henares from 1991 to 1994.
Upon the resignation of Felipe González after being defeated in the 1996 elections, the PSOE Convention appointed Almunia as the party leader, a position he held from 1997 to 2000. in 1997 at La Moncloa. In 1998, fellow party member and former minister Josep Borrell decided to run against Almunia, in the first national primary election ever held in the PSOE since the Second Republic, intended to determine who the party would nominate as its prime ministerial candidate vis-à-vis the 2000 general election. Borrell ran as the underdog, campaigning as the candidate of the socialist base against the party establishment, which largely supported Almunia, including former Prime Minister González. Unexpectedly, Borrell won the primary election, commanding 114,254 of the member's votes, versus the 92,860 obtained by Almunia. Thus began an uneasy relationship and power-sharing —the "bicefalia" — between the official party leader, Almunia, and the prime ministerial candidate elected by the members in the primaries, Borrell. However, in May 1999, a fraud investigation affecting two former officials appointed by Borrell several years earlier while he was at the Ministry of Finance, led to his resignation as Prime Ministerial candidate. In 2000, Almunia was therefore the PSOE candidate for prime minister. The party was again defeated by incumbent Prime Minister José María Aznar of the conservative PP, suffering its worst result in a general election since the Spanish transition to democracy, which resulted in an absolute majority for Aznar. As a result, Almunia resigned as PSOE leader. Almunia was the director of the research program on "equality and redistribution of income" at the Fundación Argentaria from 1991 to 1994. In 2002 he founded and served as director of a progressive think tank called Laboratorio de Alternativas.
