Via Financial Times

Pablo Iglesias is renowned for his attacks on Spain’s largest companies, which the leader of the radical left Podemos party accuses of holding back democracy and running the country behind the scenes.

So Spanish big business is decidedly anxious at the idea that Mr Iglesias — the advocate of a new bank tax, rent controls and the reversal of labour reforms — could be in government soon.

“Podemos is off the wall,” said John de Zulueta, head of the Círculo de Empresarios, a business group that includes about half of the country’s Ibex 35 index of the biggest listed companies. “All their political positions are contrary to what we consider helps business and the economy.”

Mr Iglesias and his party are vital to the ambitions of Pedro Sánchez, Spain’s Socialist prime minister, to retain power after an inconclusive general election in November. Mr Sanchez’s planned Socialist-Podemos coalition would mark the far-left’s first return to national government since Spain’s civil war 80 years ago.

Podemos was formed in the aftermath of the financial crisis, when unemployment topped 20 per cent and social protests spread. It favours a 10 per cent extra tax on banks to help recoup the more than €60bn cost of the country’s bank bailout; a national energy utility to provide affordable electricity prices; and a range of controls to ensure cheaper housing.

The party also wants the junking of Spain’s most significant economic reform of the past decade — changes to labour rules at the height of the crisis in 2012, which reduced redundancy payouts and gave priority to company-level pay negotiations rather than sectoral ones.

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Supporters of the reforms, such as Mr de Zulueta, say they helped to boost export competitiveness and create about 500,000 jobs a year between 2014 and 2018. Critics maintain that they left workers at the mercy of their employers. 

“There was a clear goal, the reduction of salaries, facilitating sackings and allowing companies to modify work conditions unilaterally,” said Anna Ginès, the director of the Institute for Labour Studies at Esade Business School in Barcelona. “It is not certain that the increase in jobs was linked to these measures because there has been a more general improvement in economic conditions.”

As the prospective government readies itself for possible power — a parliamentary vote could take place in the next few weeks although neither the timing nor the result is certain — Mr Iglesias has been trying to adjust expectations.

He has reined in his previous criticism of Spain’s “limited democracy”, in which he has argued that “Ana Patricia Botín [executive chairman of Santander], Florentino Pérez [president of Real Madrid] or any business of the Ibex 35 has more power than an MP”.

He has made contacts with leading companies while warning his activists that a minority coalition with the Socialists will mean “many limits and contradictions” and “giving way on many issues”.

In an indication of his desire to keep Podemos in check, Mr Sánchez has emphasised his plan to promote Nadia Calviño, the economy minister, to deputy prime minister — the same rank Mr Iglesias is expected to hold.

The Socialists, who have more than three times as many seats in Congress as Podemos, do not support the bank tax or the nationalised energy utility and are wary of rent controls.

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Despite Podemos’s objections, they want to proceed with the privatisation of Bankia, a bank rescued by the state during the financial crisis. Mr Sánchez’s party is also keen to emphasise that Podemos has agreed to abide by EU rules on fiscal discipline.

The big debate may be over the labour reforms. The Socialists have highlighted issues such as employers’ overuse of temporary contracts, rather than the more dramatic changes demanded by Podemos, which wants control of the labour ministry.

Business groups have signalled alarm. In the wake of the election, the Spanish Confederation of Business Organisations, which says it represents 2m companies and entrepreneurs, called on any government to embrace orthodox economic policy and push through pending reforms.

Antonio Garamendi, the Confederation’s president, who in July said Podemos’s policies would “make the economy go backwards”, has called for a grand coalition between the Socialists and the centre-right opposition People’s party instead.

Some businesses are also discomfited by measures already agreed by the Socialists and Podemos. Mr Sánchez is likely to seek to reintroduce budget plans, negotiated with Podemos but yet to win parliamentary approval, to increase taxation for big business and higher earners and introduce a digital levy. 

The coalition also plans a further substantial increase in the minimum wage over the next four years, following a 22 per cent rise this year, which some economists say has slowed job growth.

An increase can be made without parliamentary approval, although Mr Sánchez would prefer it to be the result of negotiations between government, business and unions. Many of the two parties’ other plans will require legislation — a big challenge for the prospective government.

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The Socialists have been trying to negotiate with the separatist Catalan Republican Left party, which would need to abstain on a vote on the new government for it to take office, but at present the talks are on hold.

Mr Sánchez would like a deal that would also include a budget. He has been unable to pass tax and spending measures since becoming prime minister last year.

Pushing any further legislation through Congress will be testing — particularly for issues as contentious as labour reforms. The government will also have to contend with calls from the central bank to deepen structural reform, EU demands to rein in the budget deficit, and domestic legislation that further restrains its freedom of manoeuvre.

Even so, many business people make their concerns about Podemos clear, arguing that the party’s rhetoric could scare off investment. “What they can do is likely to be less relevant than what they can say,” said one leading financial executive recently. “But what they can say can have an impact.”