Sanchez’s Fragile Coalition Targets Big Business in Spain
Sanchez’s Fragile Coalition Targets Big Business in Spain
(Bloomberg) -- Spain’s first coalition government since before the rise of dictator Francisco Franco has vowed to make banks pay for the financial crisis. The question now is whether the fragile left-wing partnership can last long enough to make its mark.
While leftist parties across the rest of Europe have been plunged into existential crisis, Pedro Sanchez is taking charge of an unexpectedly radical government in Spain after salvaging a disappointing result in November’s election through a coalition deal with the anti-austerity group Podemos.
The 47-year-old Socialist squeaked back into office for a second term on Tuesday after persuading 13 deputies from Catalan separatist group Esquerra Republicana to abstain in a confidence vote in parliament. That result gives the country a proper government for the first time in nine months but leaves the prime minister vulnerable to more turmoil in Catalonia as well as the resurgence of any tensions in his stormy relationship with Podemos Leader Pablo Iglesias.
The new government’s first test will be passing a budget for 2020, to include higher taxes for banks in a bid to recoup some of the 60 billion euros ($67.2 billion) Spain spent bailing its financial system during the economic crisis.
The coalition’s policies could make it one of the most left-wing administrations since Spain returned to democracy in the late 1970s, according to Ignacio Jurado, an analyst with political-risk consulting firm Quantio in Madrid. “But it remains unclear how much of it they are going to be able to implement,” he said.
Podemos was born from a wave of street protests in the spring of 2011 at the height of the financial crisis and came to embody the anger of the younger Spaniards who felt that their generation bore most of the pain instead of the bankers and politicians who were responsible.
The party helped to end the dominance of the traditional groups -- the Socialists and the conservative People’s Party -- who’ve dominated Spanish politics since the end of the dictatorship. The country has had no stable majority since Podemos won its first seats in parliament in 2015.
The challenge for Sanchez and Iglesias, who was in tears after the confidence vote on Tuesday, is to forge a working government for the first time since the crisis redrew the country’s political map.
“It is extremely complicated for Sanchez, but by no means is it doomed to inevitable failure,” said Jordi Alberich, an economist and former head of Cercle d’Economia, a business lobby and think-tank in Barcelona. “It’s all going to be about how much political trust is allowed to develop.”
In partnership with the Socialists, Podemos now has real power to reshape the Spanish society to benefit its supporters.
Even after six consecutive years of economic growth, unemployment in Spain is still running at 14% and the youth unemployment rate of 33% is the highest in the European Union alongside Greece’s. Average wages lag behind all the major economies in western Europe.
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To reverse the situation, Sanchez wants to bring in more protection for workers and a higher minimum wage as well as higher taxes on large companies to fund more social spending. There are also plans for rent controls and restrictions on real estate investors as the government tries to increase access to housing -- a complaint of young people for a generation.
If he can create a stable foundation in domestic politics, Sanchez has a chance to raise Spain’s profile on the European stage as the U.K. leave the EU and political divisions buffet Italy and Germany.
But hanging over him, is the chronic situation in Catalonia.
While most of those who led the 2017 attempt to force a split with Spain are now in jail, the political wounds of that crisis are still raw. Sanchez pledged a new round of talks with the regional government in order to secure the support of Esquerra for his investiture, but that arrangement could collapse at any moment.
“I don’t care one bit for the governability of Spain,” Esquerra lawmaker Montserrat Bassa told the parliament on Tuesday. Her sister Dolors is among the Catalan politicians currently serving jail terms.
Sanchez is betting that a period of stability will allow him to reduce tensions in Catalonia and create the time and space for his social and economic policies to take effect. But to achieve that he’ll need to achieve something unprecedented in modern Spanish politics, and forge a working relationship with a party that didn’t exist a decade ago.
“A lot will depend on the extent to which Podemos realizes it’s now in national government and not trying to run a town hall,” said Alberich. “Above all, it’s a test of political maturity.”
--With assistance from Jeannette Neumann.
To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net
To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Ben Sills, Caroline Alexander
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