Wednesday, May 01, 2019

Thoughts from Galicia, Spain: 1.5.19

Spanish life is not always likeable but it is compellingly loveable. 
                  Christopher Howse: A Pilgrim in Spain
Happy Labour Day!

  • The general election result seem to have given something to everyone. Café para todos, as they say in Spain. Lots of evidence of confirmation bias around, it seems to me. Except perhaps in the PP party, where the loss of support was both devastating and undeniable. Even here in conservative, right wing Galicia much of the map turned from blue to red.
  • Everyone seems to agree, though, that political instability has been entrenched, with potential adverse consequences for the economy. 
  • This is the overview of the Times, for example: After 3 general elections in the past 4 years, and a nearly a decade since voters produced a decisive result, Spain is facing the prospect of an unstable government, protracted coalition negotiations or yet more elections. On Sunday, voters hammered another nail into the two-party system, humiliating the conservative Popular Party (PP) and giving five parties, including the nationalist Vox, significant seats. More below as Article 1.
  • Politico's more in-depth overview is to be found below, as the 2nd article.
  • Finally on the election results, El País weighs in here with details of the nuances you might have missed.
  • Obesity among kids is a real problem in Spain. The Olive Press addresses it here.
  • My daughter in Madrid lives 10m from Dos de Mayo square. The Local here explains why this square exists and why Madrid celebrates the 2nd May. In part with drumming last night  - the 30th of April - so loud that my my daughter couldn't get to sleep at midnight.
The UK and Brexit
  • It increasingly looks as if there is something rotten in Germany’s business culture and, even worse, no one plans to do anything to fix it, says a Daily Telegraph columnist. See the full article below.
The EU
  • Richard North takes a (sceptical) look here at the Project's view of its next 5 years, seeing it as proof positive of the case for quitting it. Not everyone will agree, of course. For one reason or another. Certainly not those who see more in the EU than I do, 'going forward'.
  • Those nasty, greedy bankers and fund managers are at it again.
  • Odd Old Phrase: Bless Vore: "To bless with a view to curing; to use charms or spells to cure disorders".
Finally . . .
  • My elder daughter, commented on something I'd done, opined that I was 'weird'. I'm still waiting to see if my younger daughter agrees with this assessment. But am confident that my 3 grandchildren don't.

1. The Times view on Pedro Sánchez: Splintering Spain

All roads lead to Catalonia for the country’s new leader

Pedro Sánchez, Spain’s prime minister and socialist leader, has emerged from the country’s elections as a winner but he will still struggle to govern. The deep political fissures over the future of Catalonia have polarised the electorate, splintered parties and helped to propel a new radical nationalist party into a hung parliament. Unless Mr Sánchez can find a way to defuse the Catalan separatist movement, Spain will remain politically volatile for years to come. Across Europe countries are facing extraordinary challenges in holding the centre ground but few face such an existential crisis.

Mr Sánchez, who has been prime minister for barely a year, won a chunky 29 per cent of the vote and 123 seats. To form a government, however, the socialists must secure 176 seats in the 350-seat congress of deputies in the Cortes. Finding a coalition has never been more complex. The two most dynamic groupings in the election were the Citizens Party, which won 57 seats, and the populists of Vox who won 24 seats, entering parliament for the first time. Both fundamentally disagree with Mr Sánchez’s policy of dialogue and limited co-operation with Catalonia. The Citizens Party, which on paper seems like a potential centrist coalition partner, has tacked to the right and has ambitions to be Spain’s prime conservative voice, displacing the badly damaged People’s Party. It has little to gain and much to lose in joining Mr Sánchez in government.

Vox, meanwhile, has demonstrated that Spain is no longer an exception in the European Union. Despite the unhappy memories of the Franco dictatorship, it too now has a country-wide ultra-nationalist party. The party is provocative but works within democratic norms. While it opposes illegal immigration it feeds chiefly on resentment at attempts by Catalonia, one of the wealthiest regions of Spain, to break away from the central state. Its true strength may reveal itself in European elections next month, when populist groupings across the continent are hoping for a loud rejection of the EU establishment.

For the time being, the problem posed by Vox to Mr Sánchez is that of political arithmetic. The arrival in parliament of another obstructive force severely reduces the possibilities of forming a governing alliance. If rejected by Citizens, he may turn to the left-wing Podemos and a Basque party for backing. Yet even this would fall short of a majority. Spain has had minority governments before, indeed Mr Sánchez has led one; but the intractable Catalan issue — the threat that Spain could be torn apart — demands strong leadership and a robust consensus. The country’s economy is surprisingly resilient but markets and Spain’s partners need to be reassured by more than sound economic management.

Mr Sánchez should strike a firmer tone on Catalonia. On taking office a year ago he promised to “re-establish normality”. Yet the more that is offered to the Catalans, the more is demanded by the radical separatists. Catalonia generates 20 per cent of Spain’s GDP and its politicians want to hang on to tax revenue. To many Spaniards outside the region that seems unreasonable. It burdens a nation which still has pockets of serious poverty. Mr Sánchez has little choice but to find a coalition that transcends left and right and that holds to the constitutional ban on regional self- determination. His duty is to keep this vital but frustrated democratic state together.

2. Five takeaways from Spain’s election: Político

Pedro Sánchez remains the only Socialist leading a major European country.

Pedro Sánchez could hardly have scripted Sunday's election any better.

Spain’s prime minister saw his Socialists greatly increase their number of seats in parliament, secured his first victory in three elections, watched as some of his rivals were crushed, and avoided becoming the shortest-reigning prime minister in the country’s recent democratic history.

The Socialists won 123 of the 350 seats in parliament, up from 85 seats in 2016 and well ahead of the second-placed Popular Party on 66 seats.

It was, however, a polarized election that saw the parliament split between five national parties (all of which topped 10 percent) while the combined share of the two traditional big beasts — the Socialists and PP — fell to 45 percent, its lowest ever mark.

It was also a good night for the radicals: The far right, far left and separatists in the Basque Country and Catalonia claimed over a quarter of the seats in the parliament — and the far right entered the Spanish parliament for the first time since 1982.

Here are five takeaways from the election.

1. Social democratic tactics

Sánchez remains the only Socialist leading a major European country.

His victory was reminiscent of the old times when social democratic parties assembled broad coalitions of electors, which seem less and less viable in today’s fragmented politics. A poll from the Center for Sociological Research in March showed the Socialists had become the strongest party among people from the far left to the center (1 to 5 on a scale from 1 to 10) and in most age brackets and provinces of Spain.

His Cabinet focused on approving left-leaning measures like a 22 percent rise in the minimum wage and new subsidies for jobless people aged over 52 — and Sánchez emphasized fighting inequality in his speeches. That earned him the respect of the left.

“We’ve been campaigning for months by creating a narrative of what a progressive government could deliver,” Infrastructure Minister and the Socialists’ campaign head José Luis Ábalos said in an interview last week.

Sánchez ensured good relations with the business community and Brussels by appointing to his government the likes of Nadia Calviño, the economy minister who was previously head of the budget department in the European Commission. And Spain's economy kept growing, which proved key to earning the support of the center.

Then there were his rivals’ mistakes.

The far-left Podemos was plagued by infighting, while on the opposite end of the spectrum Vox spooked the moderates; the mainstream conservatives copied the far-right discourse; and the liberals vetoed any deal with Sánchez. These factors combined to leave the door wide open for the Socialists.

“Social democracy has a long history,” Sánchez told supporters on Sunday. “But it especially has much future, because it has a great present — and Spain is proof of this.”

2. Combinations in parliament

Until now, Sánchez led the government with the weakest parliamentary backing in Spain’s democratic history. As of Sunday, he will still rely on other parties but has won breathing space in parliament and opened up various coalition options.

A coalition of moderates with the liberal Ciudadanos would reach an absolute majority in the parliament as well as enjoying the blessing of the business community, the Spanish establishment and Brussels. Some editorials on Monday were already calling for that.

That looks very unlikely at this stage. Ciudadanos came a close third behind the Popular Party, giving the liberal party every incentive to persevere in its bid to take over leadership of the center right from the PP. Liberal leader Albert Rivera, who has a second chance at the sorpasso in the European, regional and local ballots in Spain on May 26, reiterated on Sunday night and again on Monday that his intention is to lead the opposition.

Second, a combination of the Socialists, Podemos and small regional parties — including moderate nationalists from the Basque Country — would sum 175 seats, just one short of the absolute majority. That means there could be many circumstances where Sánchez would not need to rely on the two Catalan pro-independence groups and a radical Basque separatist group, whose support could prove more difficult to obtain, and he certainly would not require all of their support at once.

Together with an absolute majority for the Socialists in the Senate — the upper chamber of the parliament, which in practice can slow down the legislative process — and the prospect of a more friendly governing body of the Congress, which was in control of the right, all of this means Sánchez has options on the table.

However, there were early signs that the coalition wrangling will be difficult. Deputy Prime Minister Carmen Calvo suggested in a radio interview that the Socialists would prefer a minority government with external ad hoc coalitions in parliament to back their bills. Podemos leader Pablo Iglesias, on the other hand, demanded a formal coalition.

3. Popular Party catastrophe vs. the rise of Ciudadanos

The PP's new leader Pablo Casado was the big loser of the night, with his party losing half its vote and seats in parliament since the previous election in 2016.

The scale of the beating was hard to overestimate.

It was the conservatives’ worst performance since 1979, when the party was called Alianza Popular. Casado came in second place, but front-runner Sánchez nearly doubled his votes, an unprecedented distance lead. On top of that, Ciudadanos came a close third — overtaking the PP in several regions — and is in a position to fight for the hegemony of the center right.

Since PP members chose Casado as their leader last year, he has shifted the party sharply to the right and tried to rejuvenate its structure in a bid to fend off Vox and prevent the fragmentation of the right.

It didn’t pay off.

Casado blamed his defeat on the three-way split of the right and on the electoral system. Some observers are reminded of the fate of the Union of the Democratic Center, the center-right party which led Spain's transition to democracy under Adolfo Suárez, won two elections in 1977 and 1979, and then abruptly collapsed.

Ciudadanos, on the other hand, won backing for Rivera's bid to dominate the center right in Spain and compete for PP voters. It was not without controversy among the party leadership, and may have facilitated Sánchez's claim to control the center ground, but the result appears to lend credibility to Ciudadanos’ right-wing turn.

4. The far right

Vox becomes the first far-right party to reach the Spanish parliament since 1982. Its performance was in line with predictions, though expectations of a bigger result had been fuelled by its massive campaign rallies. It won 10 percent of the vote, 24 seats in parliament and became the fifth biggest party in the chamber.

In contrast to many of its peers elsewhere in Western Europe, which tend to appeal to working-class voters, Vox drew support from the ranks of the Popular Party and relatively prosperous people. Its rise, therefore, split the right-wing electorate.

In 2011, the PP under Mariano Rajoy won 45 percent of the vote and 186 seats in the parliament — more than enough for an absolute majority. In 2016, Rajoy’s PP and Ciudadanos won a combined 46 percent and 169 seats — short of a majority. In this election, these two parties plus Vox (and a right-wing coalition in Navarra region) totaled 43 percent of the vote and 149 seats.

The prospect of a new intake of radical lawmakers bent on scrapping laws against gender violence and all regional governments, recruited from among Francoist generals, was enough to get left-wingers and Basque and Catalan nationalists flocking to the ballot boxes. Overall turnout was nearly 76 percent, over 9 percentage points more than the previous ballot in 2016.

Sánchez turned the far-right threat into his advantage, warning repeatedly of the Vox threat on "wedge" issues like feminism and historical memory to mobilize the Socialist electorate.

Vox leader Santiago Abascal on Sunday hailed his party’s breakthrough and promised that its 24 lawmakers would put up a tough fight against the left and what he called the “cowardly right.” Pundits disagree as to the mid-term consequences of Vox reaching parliament: Some believe it will lose steam as soon as its inexperienced lawmakers — who mostly avoided news conferences and awkward interviews during the campaign — open their mouths.

On the other hand, Vox will lend visibility to views — such as anti-immigrant positions or a dose of Euroskepticism — which have been marginal until now. While Spaniards tend to be progressive on those issues, Vox could contribute to change citizens’ view, especially if it turns its attention to working-class voters.

At the end of the day, Alternative for Germany made its first national breakthrough in the European Parliament’s election of 2014 when it received over 7 percent of the vote.

5. The Catalan Factor

“Many Spaniards have had more fear of Vox than of the separatists,” Pedro J. Ramírez, a veteran journalist and director of news site El Español, was quoted as saying in newspaper La Vanguardia.

The three parties on the right (PP, Ciudadanos and Vox) attempted to portray Sánchez as a traitor who surrendered to Catalan separatists. They competed among themselves to offer tough solutions to the territorial crisis, which ranged from imposing direct rule over the region to abolishing regional governments and banning separatist parties altogether.

After a campaign fought heavily on the issue of territorial unity, the Spanish electorate on Sunday denied its parliament something that Catalans have repeatedly given their regional legislature since 2012: A mandate for national confrontation.

There was some evidence of this in polling data before the election. The right had contributed to raising concerns over Catalonia, but only slightly, with a CIS poll in March showing 11 percent of Spaniards rate “Catalan secession” as one of Spain’s three main problems, up from 7 percent in February.

The results in Catalonia were good for the Socialists in two ways. The pro-independence Catalan Republican Left, which is often described as softer in comparison with former Catalan President Carles Puigdemont’s Junts per Catalunya (Together for Catalonia), became the strongest party in the region, which could result in a less hard-line secessionist camp in the medium term. Secondly, the Catalan Socialists came a close second and parliamentary math means Sánchez will be less reliant anyway on the caprices of pro-independence parties.

With the criminal trial against Catalan officials who led the independence push in October 2017 still ongoing and sectors of the independence camp advocating for further confrontation, Catalonia is, however, set to remain one of Sánchez's big headaches.

3.  Something is rotten with the state of German business: Daily Telegraph.

Greece, for sure. Probably Italy as well. Perhaps China, Brazil and anywhere in the Middle East. There are plenty of countries around the world where we suspect that business can be corrupt, not many deals get done without some money changing hands along the line, and where bribes and backhanders are woven into everyday commercial life. But Germany is probably not on the list. And yet it should be.

In fact, over the last decade, many business scandals have been stamped with the words “Made In Germany”. Such as? The tech company Wirecard has just become the latest major German business to become embroiled in problems. Before that, Volkswagen was caught cheating on diesel emissions standards, Siemens was caught up in one of the most serious bribery cases of all time, while Deutsche Bank has been handed massive fines for breaking financial rules.

Corruption appears endemic, and within the country’s very biggest and, on the surface most prestigious, companies. Of course, that might just be a coincidence. But it increasingly looks as if there is something rotten in Germany’s business culture and, even worse, no one plans to do anything to fix it.

Over the years, there have always been plenty of major scandals in business. The Madoff affair in the US, the systematic fictions of Enron in the same country, the Polly Peck and Maxwell scandals in this country in the Eighties and Nineties, or the Parmalat affair in Italy a decade later. Big money has always attracted conmen, cheats, liars and frauds, and there have always been businesses that stray over the line into outright criminality. There probably always will be. And yet, it is noticeable in the last decade that increasingly it is a German company at the heart of the biggest scandals.

The latest is the high-flying tech start-up Wirecard. The payments company is one of Europe’s most impressive fintech businesses and last year replaced Commerzbank in the blue-chip DAX index. Earlier this year, the Financial Times reported on allegations of fraud and accounting irregularities at its Singapore office.

In fairness, the company denies those stories, and indeed the Japanese tech investor SoftBank this month took a big stake in the business, which suggests that the alleged scandal may yet blow over. Even so, there have been serious questions about the way the company conducts itself. Indeed, only last week the FT reported more questions over the profits allegedly made by three “opaque partners”.

There is no doubt about the other scandals that have embroiled Germany’s biggest companies. In 2015, Volkswagen was caught up in one of the worst of all time when it was discovered the auto manufacturer had been systematically fixing diesel emissions tests.

Eventually Martin Winterkorn, the chairman, was forced to resign, and the company still faces investigations and possible fines over the affair. Likewise, the electronics giant Siemens has been caught up in some of the largest bribery scandals of all time. It was fined a record $800m (£619m) in the US after a long-running investigation into bribery and corruption. Deutsche Bank, still the country’s most prestigious financial institution, has faced allegations over money laundering and fraud.

Bloomberg recently calculated it had paid $18bn in fines over the last decade – more than its current market value – and in November last year the German authorities mounted a raid on its offices over yet another investigation. Those are four of Germany’s biggest companies.

We have an image of Germany as a very law-abiding country, and on one level that is certainly true. The streets are safe, and no one can pay a bribe to get out of a parking fine. Transparency International ranks it as the 11th least corrupt country in the world, level with the UK. Backhanders are clearly not routine. And yet right at the top of the country’s biggest companies it is starting to look painfully obvious there is an honesty issue. Why? There are three possible explanations.

First, Germany has developed an inward-looking corporate culture where rules end up at risk of being bent. With the possible exception of France’s CAC-40, there is no more moribund major index in the world than the DAX. Most of the companies on it have been around for decades, if not centuries, and are staffed by managers who have spent their entire careers within the same giant corporation. It is hard to think of a better system for creating cover-ups and complacency, or a culture where breaking the rules is just accepted as the norm. No one asks difficult questions, and they are quickly frozen out if they do.

Next, there is not nearly enough scrutiny of companies, either from shareholders, the press, or government. Most of the scandals uncovered have come to light elsewhere, usually in the US. It is rare that Germany’s own regulators discover anything – which suggests they are hardly even trying.

Finally, it is stuck with an old fashioned, export dominated economy where there is a constant temptation to break the rules. A huge percentage of Germany’s industrial base consists of big orders to the developing world. You don’t get those deals without being willing to grease a few palms. The country’s business establishment has allowed itself to become reliant on wheeler-dealing with the murkiest corners of the world. It can hardly complain if that means executives often stray into breaking the law. It is part of the business model.

The Germans are fond of portraying themselves as the exemplars of responsible, socially conscious capitalism. In truth, however, the hypocrisy is starting to become nauseating. There is clearly something rotten within Germany’s business culture – and even worse, no one seems to want to do anything about it.

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