Podemos Wants to Talk to Investors About Easing Spain’s Debtby
Anti-establishment group wants longer duration, lower interest
Party seeking alliance with Socialists after June election
The anti-establishment party Podemos plans to explore ways to lighten the burden of Spain’s 1.1 trillion euros ($1.2 trillion) of public debt in talks with creditors if it can seal a role in government after next month’s vote.
Podemos, an insurgent group that came within 350,000 votes of overtaking the second-placed Socialists in its first general election in December, will try to persuade debtholders that they will benefit from giving Spain more breathing space within the European Union’s debt constraints, the party’s head of political strategy, Inigo Errejon, said in an interview this week.
“We are humble about this -- it’s a negotiation and in all negotiations you always get a bit less than you ask for,” Errejon, 32, said in his office looking out on the Plaza de Espana in downtown Madrid. “We want to explain to some of our creditors that our solvency will increase as we are able to grow, because apart from the debt and deficit issues we have other problems such as dramatic unemployment.”
Spain is seeking to forge a new political consensus after a deadlock in December when Podemos and its pro-market rival Ciudadanos, another new movement, broke up the two-party monopoly that has controlled Spain for the past three decades. After eight years of deficit spending to keep the economy afloat, the country’s public debt rose to its highest level in more than a century in the first quarter, while the jobless rate remains above 20 percent.
Caretaker Prime Minister Mariano Rajoy has budgeted 33.5 billion euros for central-government interest payments this year, almost double the 19.3 billion euros for unemployment benefits, even with the European Central Bank’s debt-purchase program pushing Spanish funding costs to a record low. With 53 percent of sovereign debt held outside the country, Spain is paying almost as much to foreign investors as it does to support its jobless.
While Spain’s debt rose to more than 100 percent of output this year, that burden is dwarfed by several other euro nations. Belgium is at 106 percent, Cyprus 109 percent, Portugal 126 percent, and Italy 133 percent. Greece, which is onto its third bailout since 2010, has public debt of 183 percent of its gross domestic product.
Even so, the cost of servicing those debts has shrunk as the ECB pumps as much as 1.7 trillion euros into European debt markets in a bid to revive inflation. Spain’s average funding costs have plunged to 0.8 percent this year from about 4 percent in 2011, according to the Treasury. The government can borrow for three years for practically free while investors are paying to hold shorter-term Spanish paper.
Since December’s vote, Podemos has strengthened its position by sealing an alliance with the former Communists of the United Left, and their joint list is on track to win 24 percent of the vote on June 26 compared with 21 percent for the Socialists, according to an average of polls calculated by website Electomania. Rajoy’s People’s Party is set to win 30 percent, 1 percentage point more than in December, while Ciudadanos will increase its vote to 15 percent from 14 percent, Electomania said.
Podemos has moderated its stance on Spain’s debt since emerging from the street protest movement of disenfranchised young people, known as the “Indignados,” that took over the center of Madrid at the height of the economic crisis. In January 2015, before its Greek ally Syriza lost out in its own clash with the European authorities, the group was promising it would force losses on investors if he took power. Now Errejon is striking a more conciliatory tone.
“We have modified some of our manifesto’s elements, not so much for electoral purposes but because we saw that we had real chances of taking power,” Errejon said, the four-week election campaign mapped out on the office whiteboard. “We are extraordinarily honest about the limits to a process of transformation within the European Union.”