What happens when one of the eurozone’s more leftwing governments runs one of the region’s fastest-growing economies? Spain’s businesses are set to find out in coming months.
The coalition that took office in Madrid this year is the first since the Spanish civil war to include communist ministers and has a shopping list of planned measures that business is not best pleased about — including higher taxes, rent controls and changes to labour laws.
The new government, led by Socialist prime minister Pedro Sánchez, arrives as Spain’s economy gradually slows down from its turbocharged recovery from the depths of recession. Gross domestic product grew by 2 per cent last year — still well ahead of the eurozone average — but nevertheless the lowest rate for five years.
Business leaders complain that such a sensitive stage in the economic cycle is hardly the time to experiment with new rules and taxes — even before taking into account the possible effects of the coronavirus epidemic.
Yet over the past 10 days, the government has announced plans to allow local authorities to limit rent rises and responded to pressure from farmers by banning the sale of food below cost at almost every stage of the supply chain. The new government’s position on regulation is all the more under scrutiny because well over half the companies in the Ibex 35 index of leading stocks are in highly regulated sectors such as banking, energy, transport and construction. The coalition is also planning to increase taxes on high earners and set a minimum effective tax rate of 15 per cent for big business.
There is another, broader issue: the chief worry for many companies is Madrid’s plan for changing Spain’s labour laws. In 2012, in the depths of the last recession, the centre-right government of the day pushed through changes that cut labour costs through measures such as slashing severance pay and shifting to company-level, rather than sectoral, negotiations on pay and conditions.
Many economists link those changes to Spain’s increase in competitiveness and its export-led recovery, but Mr Sánchez’s coalition argues the nation’s workers paid too big a price for the country’s bounce back to economic health. It is planning to reverse the “most damaging effects” of the 2012 labour reforms.
Some manufacturers warn that shifting back towards sectoral level negotiations with unions could push up costs not so much for the largest groups — which generally offer workers better conditions than the industry baseline — but for their suppliers. Others say the real risk is a proposed crackdown on subcontracting. “The real drama is if they make the rules on subcontracting rigid,” Antonio Garamendi, chairman of the Spanish Confederation of Business Organisations, told the FT last month.
His organisation maintains that business activity in Spain and the eurozone is based on a decentralised economic model that depends heavily on subcontracting. Spain’s central bank chief has also warned that unpicking labour reforms could hit the country’s competitiveness.
However, business leaders recognise they cannot reject the government’s agenda wholesale. Spain’s centre-right opposition is at a low ebb; Ciudadanos, a pro-market party favoured by many Ibex 35 bosses, crashed and burnt in last November’s election and the coalition between the Socialists and the radical left Podemos could stay in office for years, despite its lack of a majority.
The country’s business leaders acknowledge there is a case to answer on inclusion, worker participation and transparency. After the government increased the minimum wage in 2019 by an eye-catching 22 per cent, Mr Garamendi took the lead in negotiating a more modest rise of 5 per cent for this year with some of the government’s most leftwing ministers.
Further crucial talks about the labour law changes are coming. Centrist members of the government such as Nadia Calviño, the deputy prime minister for the economy, are seeking to provide reassurance, insisting that the administration will consult business on almost every aspect of the reforms.
Mr Garamendi thinks the next three or so months will reveal how much of an effect those changes will have on Spain’s economic model. “The competitiveness of our companies is at stake,” he said. “The future of our companies is at stake.”
daniel.dombey@ft.com
Source: Economy - ft.com
