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Who Should Be Afraid of Podemos in Spain and Who Can Just Relax

Charles Penty, Jeannette Neumann, Macarena Munoz and Charlie Devereux
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Who Should Be Afraid of Podemos in Spain and Who Can Just Relax

(Bloomberg) -- Podemos was born from the rage against austerity as a previous government poured rescue money into the banking system.

Now the party is on the brink of taking power as part of a coalition in Spain and investors are worried.

Spanish stocks slid on Tuesday and Wednesday after Podemos leader Pablo Iglesias sign a deal with acting premier Pedro Sanchez, a Socialist. The two men pledged to form a “robustly progressive” administration.

If they can find the extra votes they still need to take power, the Socialist-Podemos pact could give Spain its first proper majority since 2015. As the largest party, the Socialists would have the upper hand, but Iglesias would also have a chance to put some of his policies into effect.

Here’s a run down of the structural reforms Podemos has in mind for Spain:

Protect the Workers

Podemos wants to roll back changes introduced during the crisis to make Spain’s labor market more flexible. As well as making it more expensive to fire workers, it would also reinforce national collective-bargaining arrangements with unions.

The signs are that the Socialists might agree to some of those measures as they flesh out the coalition deal and any rollbacks could be bad news for attempts to bring down the 14% unemployment rate further. Other proposals include a universal basic income, another hike in the minimum wage and higher pensions linked to inflation.

Who Pays the Debt?

Iglesias, who’s tipped to be deputy premier, agrees with the Socialists that Spain needs to bring down its debt pile, which is nearly 100% of economic output. But they differ wildly on how to do so.

The Socialists advocate narrowing annual deficits and other fiscal belt-tightening. Podemos wants the European Central Bank to lend a hand by writing off a chunk of the Spanish government debt that it holds as a result of its quantitative easing program.

But that’s an idea that’s going to remain beyond the remit of Spain’s deputy prime minister whatever the parties negotiate in the weeks ahead.

Taxing the Banks

Podemos wants lenders to pay more corporate tax than other companies and levy a charge on transactions to recoup the 60 billion euros ($66 billion) of state aid used to rescue failing savings banks during the financial crisis.

The party also wants to stop the government selling its majority stake in Bankia, a lender rescued in 2012 at the height of the crisis. Its electoral program calls for replacing Bankia Chairman Jose Ignacio Goirigolzarri, with “someone capable of understanding the role that a public bank should play in improving the country.”

Investors see Goirigolzarri as fundamental to the bank’s prospects. The stock has fallen 7.8% since Monday.

Landlords Beware

Podemos wants to do away with real estate investment trusts which it says encourage tax avoidance and speculation. The group also proposes a census of empty homes owned by investment funds and companies and wants to intervene in the property market to stop so-called abusive rent hikes.

If Iglesias had a free hand, no family would spend more than 30% of its income on rent, tenants would have indefinite contracts and tourist lets would be tightly controlled. All of that’s a concern for the investors that piled into property during the financial crash -- Blackstone Group alone has sunk 23 billion euros into the Spanish real estate market.

Power for the People

Iglesias wants a public power company to lower the price of electricity. Even if he doesn’t get that, Alantra Equities sees a negative impact on Spanish utilities because the coalition is likely to push renewable power and could be tempted to lower the price paid for regulated activities like power transmission to bring tariffs down.

Podemos says Spain’s electricity market is dominated by “a private oligopoly.” But it isn’t going as far as Jeremy Corbyn in the U.K. The Labour leader is pledging to renationalize Britain’s power grid if he wins next month’s election.

Rich People’s Money

Podemos has pledged to review the structure of investment vehicles that enable wealthy Spaniards to pay less tax.

If these vehicles, known as Sicavs, disappear foreign banks such as Credit Suisse Group AG or UBS Group AG would take a hit as they have dedicated Sicav teams in Spain. Banco Santander SA has the largest Sicav business with 5.2 billion euros under management, according to June data from Spanish fund association Inverco.

Uber Anyone?

Iglesias is no fan of the gig economy and wants to protect taxi drivers from ride-sharing services such as Uber. One Podemos proposal would require Uber clients to book at least two hours ahead of time.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net;Jeannette Neumann in Madrid at jneumann25@bloomberg.net;Macarena Munoz in Madrid at mmunoz39@bloomberg.net;Charlie Devereux in Madrid at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Chad Thomas at cthomas16@bloomberg.net, Ben Sills

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