Spain’s top economic official has sought to address investor concerns about the country’s new leftwing coalition by promising to negotiate sensitive changes to labour law with business and unions and to steadily cut the country’s fiscal deficit.
Nadia Calviño, deputy prime minister for the economy, insisted in an interview that the government — the first for 80 years to include communist ministers — would avoid any radical break with the ruling Socialists’ previous record.
“I don’t see any reason for investors to be scared when they know what we have been doing for the past 20 months,” she told the Financial Times, emphasising the government’s focus on “sustainable and inclusive” growth and its promise to abide by EU budget rules.
“You cannot have long-term economic and financial stability without social stability,” added Ms Calviño.
Many executives and investors are reassured by the leading government role given to Ms Calviño, a former senior EU official tipped by some as a potential head of the eurogroup of eurozone finance ministers. But they remain concerned about the Socialists’ coalition with the radical-left Podemos party, which controls the employment, consumer affairs and equality ministries.
Pablo Hernández de Cos, governor of the Bank of Spain, warned last week that unpicking Spain’s landmark 2012 labour reform — one of the principal targets for the government — could hurt the country’s competitiveness.
Many economists say the labour reform, which cut severance pay and gave priority to company-level rather than sector-wide industrial negotiations, bolstered Spain’s recovery after the financial crisis. In the five years to the end of 2018, the country added more than 2m jobs and improved its export performance.
The Spanish economy has recently slowed, although the country continues to outperform the eurozone, racking up growth of 2 per cent in 2019.
Ms Calviño promised a gradual, consensual approach to labour reform. She said there was broad support for banning employers from sacking workers for taking sick leave. But she added that further changes to the labour law would be subject to negotiation.
“The rest of the issues will be channelled through social dialogue,” she said. “We want to reinforce this social dialogue in order to ensure that any reform is balanced, does not endanger job creation and . . . that [it will endure] for a number of years.”
She emphasised how the government had negotiated a minimum-wage increase this year with business and unions, rather than imposing a level of its own devising.
However, the coalition agreement between the Socialists and Podemos seeks several other urgent changes to the labour law. These include switching back to industry-wide negotiations on pay and conditions and limiting the use of subcontracting.
The government is also contending with calls from Brussels to reduce Spain’s structural budget deficit — at present about 2.5 per cent of gross domestic product — by 0.65 per cent of GDP.
The challenge is all the greater because, between them, the Socialists and Podemos command only 155 of the 350 seats in the chamber of deputies, making the passage of any legislation intensely difficult.
Pedro Sánchez, prime minister, has so far been unable to win approval for a budget, relying instead on tax and spending plans passed by the last centre-right government almost two years ago.
Spanish officials have suggested that Madrid will outline budget plans that will reduce this year’s deficit by less than Brussels seeks but which will aim to achieve rough fiscal balance by the end of the government’s mandate in four years’ time.
“We are definitely committed to reducing the deficit in the course of the mandate as fast as possible and also to pursue the path of debt-to-GDP ratio reduction,” Ms Calviño said. She said the goal was “deficit reduction but without endangering economic growth and job creation”.
Some economists express scepticism that the government will meaningfully reduce the deficit even if it lasts a full term in office, while the government’s minority status and the intense polarisation of Spanish politics are likely to complicate any reform agenda.