25 February 2015

Now that the dust is (sort of) settling on the deal struck between Greece and its creditors for a four-month bailout extension, the moment has come to look at where the latest developments leave Podemos – Spain’s anti-establishment party which has no doubt been watching closely how its ally SYRIZA handled the negotiations in Brussels.

Remember, there will be general elections in Spain later this year (or in January 2016 at the latest) and some opinion polls have suggested Podemos may come out as the largest party.

The Greek deal is hardly good news for Podemos

As we noted in our previous blogs (see here and here), the Greek government has been forced to backtrack on almost all its flagship electoral pledges in order to secure a short-term deal and avoid crashing out of the euro – not least because SYRIZA did not have a popular mandate to take Greece out of the single currency.

Podemos would face the same dilemma. The party led by the ponytailed, eloquent Pablo Iglesias has been telling Spanish voters that it’s possible to pursue economic policies that would stimulate domestic demand by increasing public spending and remain a member of the Eurozone. The recent negotiations between Greece and its creditors have shown that this is simply not the case. EU fiscal rules must be complied with, and commitments made by previous governments must be honoured.

Interestingly, Iglesias has given a rather positive assessment of the Greek deal, calling it “reasonable”. On Monday, he told Tele Cinco:

There’s something we can celebrate. Finally, there’s a government from Southern Europe that negotiates and doesn’t [only] obey…[The Greek government] hasn’t done what good part of Southern European governments have done: kneel and obey.

Pablo Iglesias, interview with Tele Cinco, 23 February 2015

Conversely, Spanish Prime Minister Mariano Rajoy – whose centre-right Partido Popular has been passing unpopular budget cuts and structural reforms over the past four years – has stressed:

There have been three Eurogoup meetings and SYRIZA has been told [that its proposals could not be accepted], and SYRIZA had to say that it would stick to the commitments.

Mariano Rajoy, speaking during the Debate on the State of the Nation, 25 February 2015

In other words, each side is trying to spin the Greek deal.

Furthermore, just like SYRIZA, Podemos has no government or negotiating experience. This had an impact on the Greek talks – with other Eurozone governments not always happy about the ‘unconventional’ approach taken by the new Greek government. The same would very likely be true for Podemos.

All that said, the negotiations in four months’ time will probably be more important as a template for Podemos, since the talks will focus on what Greece can do once it has exited the current programme and will determine how much fiscal flexibility and debt relief are really on offer in the longer term.

But Spain is not Greece

Spain is in a very different position from Greece. Firstly, it’s the fourth-largest economy of the Eurozone – so it does have systemic importance for the future of the single currency. Secondly, it never asked for a fully-fledged bailout and it’s no longer under an EU-IMF programme anyway – meaning that it can finance itself on the markets. Thirdly, it has passed a few important structural reforms. Fourthly, a debt restructuring – which has been advocated by Podemos – would be a rather different proposition, since large part of Spain’s debt is privately owned.

Hence, Podemos can claim that Spain would have a better negotiating hand than Greece. However, as we have noted before, many of the pledges of parties such as SYRIZA and Podemos not only go against what would be foreseen under a bailout programme. They also contradict most of the current economic governance rules which all Eurozone members need to abide by.

Will Spain’s economic recovery hamper Podemos?

Economic recovery seems to be consolidating in Spain, and the government has upgraded its 2015 GDP growth forecast from +2% to +2.4%. However, there’s always a time gap between macroeconomic indicators getting better and citizens actually perceiving that things are getting better. With Spanish unemployment expected to stay high over the next few years, Podemos should presumably still be able to rely on widespread anti-austerity sentiment.

Unlike SYRIZA, Podemos is not guaranteed a place in government

After the January 25 Greek elections, SYRIZA was only two seats short of an absolute majority in parliament. Looking at the latest opinion polls, and due to the different electoral systems, it seems very unlikely that Podemos will finish anywhere near that – although the party is clearly on course for a strong showing. This has one immediate implication on coalition formation. In Greece, the alternative was between a government with SYRIZA in it or else no government at all. In Spain, Podemos could potentially be kept out of power by a grand coalition between the centre-right Partido Popular and the Socialist Party – although that would be an unprecedented and uncomfortable arrangement.

In any case, the road to the Spanish general election is still very long. Municipal and regional elections will take place across the country over the next few months, starting with Andalusia in March and finishing with Catalonia in September. Local results may well give us a better foretaste of things to come.