Podemos gears up for next year's Spanish elections with revamped economic plan

Pablo Iglesias with economists Navarro (right) and Torres López (left)  

With the next general election only one year away, Spain's anti-establishment party Podemos last week unveiled a revamped package of economic proposals written for them by Spanish economists Vicenç Navarro and Juan Torres López (in the picture with Podemos leader Pablo Iglesias), and called, 'An economic project for the people'. We went through the 68-page document and pulled out the most interesting bits.

WHAT'S IN THE PLAN?

The euro: a "mouse trap" in need of an overhaul

The document describes the euro in its current form as "a real mouse trap", arguing that "it is materially impossible to pursue policies that satisfy the national interest" within the existing framework. However, as we previously noted on this blog, Podemos stops short of calling for Spain to leave the single currency. Instead, the document says,

"It is fundamental that the Spanish government promotes and achieves as soon as possible strategic agreements with [the governments] of other European countries to change the current conditions of governance of the euro."

So what are the changes Podemos is looking for? The document lists a few:

• "Flexibilisation" of the EU's Stability and Growth Pact (EU fiscal rules) - although no further details are provided as to what this would involve in practice.

• "Change the rules that prevent the ECB from financing governments", while establishing a number of conditions under which this can be done. 

• Amend the ECB's statute to include "full employment" among its policy targets.

• Make the ECB accountable to the European Parliament, which should also be in charge of appointing ECB members.

• "Create mechanisms that guarantee the pooling of debt and the effective supervision of the financial system at the European level".

• Scrap the balanced budget rule from the Spanish Constitution - which is basically tantamount to rejecting the EU's 'fiscal compact' on budgetary discipline.

• Achieve real coordination of economic policies in the Eurozone.

Debt restructuring: a matter of when, not if

The document presents an "orderly restructuring" of Spanish debt as the only real way to revive the country's economy. It reads,

"In Spain as in [the rest of] Europe, there is no way to achieve sufficient [economic] recovery unless debt decreases, and debt cannot decrease unless the recovery materialises. The only way out of this vicious circle is an as orderly as possible restructuring of European and Spanish debt. Therefore, the question is not whether one wishes to implement it or not, but rather in what conditions it will happen, because it is materially inevitable that it is implemented sooner or later." 

Other economic measures 

The document contains a number of other economic measures to be adopted at the national level, some of which could have a significant impact:

• Raise the statutory minimum wage.

• Scrap the labour market reform passed by Mariano Rajoy's centre-right government.

• Legally enshrine a 35-hour working week.

• Bring the legal retirement age back to 65 years - although with some flexibility depending on the nature of the job.

• Increase public spending and challenge "the false idea that in Spain there is an excess of public resources, too many civil servants or public sector employees in the administration, and excessive spending on public goods and services". 

On the revenue side of public finances, Podemos seems to primarily focus its attention on stepping up the fight against tax evasion and increasing wealth taxation - although the document does mention the need to avoid "any type of unnecessary [public] spending", thereby making budget savings.

WHAT'S NOT IN THE PLAN?

Compared to the European election manifesto of Podemos, which we analysed here, there are at least two big changes:

• The idea of a 'basic universal income' for every citizen has been dropped. According to the party's own estimates, the measure would have cost the Spanish government some €145 billion - roughly 14.5% of Spanish GDP. Instead, the new document proposes "emergency plans" to help people at risk of social exclusion.

• The proposal to hold a 'citizens' audit' of Spanish public debt, potentially leading to a selective default, is also no longer there - and has been replaced by the call for debt restructuring.

HOW HAVE THE TWO MAIN TRADITIONAL PARTIES REACTED TO THE PLAN?

The day after Podemos unveiled its new economic plan, Spanish Economy Minister Luis de Guindos was asked about it at a press conference. All he said was, "I don't think anyone wants to go back to the [economic] situation we were in three years ago". 

As regards the Socialist Party, the new leader Pedro Sánchez said, "I'd like [Podemos] to be consistent and not to fall into ideological opportunism", and stressed that Podemos was already "reneging" on some of the proposals included in its European election manifesto (as we noted above). Sánchez also said he's against the 35-hour working week.

OPEN EUROPE'S TAKE

It is very interesting how Podemos has ditched at least two of its most radical economic proposals. With a view to next year's general election, the move is most certainly aimed at winning over undecided/disappointed voters from the centre of the political spectrum, while also preempting criticism from the two mainstream parties - the ruling centre-right Partido Popular and the Socialist Party - that Podemos is telling fairy-tales to the Spanish electorate because it is pursuing unrealistic policies.

For the rest, this revamped economic plan seems to fit perfectly with our description of Podemos as a 'shadow eurosceptic' party: it doesn't openly call for Spain to leave the euro, but many of its proposals are incompatible with Eurozone membership under current terms.

Interestingly, many of the proposals actually involve transferring more power and sovereignty to Europe, even over sensitive fiscal issues. The scrutiny this is put under in Spain will be important. It is also not clear exactly how power would be pooled and managed at the Eurozone level under the proposals of Podemos.

In the meantime, it is undeniable that the extraordinary rise of the party led by Pablo Iglesias has already made an impact on the Spanish political debate. To mention but two examples:

• The Socialist Party has toughened up its anti-austerity rhetoric. The party's new leader, Pedro Sánchez, has himself proposed scrapping the balanced budget rule from the Spanish Constitution - despite voting for it back in 2011.

• Yesterday, for the first time, the deputy leader of Partido Popular María Dolores de Cospedal admitted in a TV interview that her party would "consider" forming an unprecedented grand coalition with the Socialist Party if it failed to win an absolute majority in next year's elections. This may well be a sign of concern that a left-wing coalition between Podemos and the Socialist Party could force Partido Popular out of power.

Everything seems to suggest Spain will be one of the Eurozone countries to watch next year.