Rob Cox: Podemos can improve Spanish capitalism

By Rob Cox
January 29, 2015

By Rob Cox

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

At the end of October, one of the most widely anticipated stock market debuts in Europe ground to a halt. The initial public offering of 49 percent of Spain’s Aena, the $9 billion operator of airports in Madrid, Barcelona and 40 other cities, was abruptly postponed.

The reason was not a problem with the deal’s underwriters. Madrid had long ago conducted a beauty contest to choose five global coordinators. Nor was the government paying too much for their services. They had accepted a fee of 0.19 percent of the deal’s value, half of what other banks wanted to charge.

The problem was a potential conflict of interest. As is the convention in most IPOs around the world, Aena’s auditor, PwC, had been given a bookkeeping role without a competitive auction. In a highly unusual move, the Economy Ministry led by Luis de Guindos sent the prospectus back with a directive to put the auditing assignment up for a bake-off. Guindos had once headed PwC’s Spanish finance operations.

A few weeks later, Ernst & Young got the business, which included drafting a so-called “comfort letter” carrying a fee of more than 600,000 euros. Three months later than anticipated, the deal is wheels up, Aena’s executives are on a global roadshow, and the shares should hit the Bolsa next month.

The anecdote reveals the extent to which the government of Prime Minister Mariano Rajoy is going to ensure that its dealings are impervious to accusations of cronyism or corruption. By throwing the auditing job up for grabs, nobody can say Guindos handed his old firm a favor.

For that, Spaniards can thank Podemos, or the “We Can” party, which is roiling the normally stable two-party system that has governed Spain since the end of Francisco Franco’s dictatorship in 1975. Following Sunday’s victory by Syriza in the Greek elections, Podemos is now the focus of attention for global investors. They are fretting that Spain’s trajectory toward reform and fiscal discipline could be upended.

They have little to fear. True, though the group’s policy platform has yet to be clearly articulated, some of its leaders have advocated, among other things, scrapping Spain’s labor reforms, lowering retirement ages and even restructuring the national debt. And Podemos currently leads in the polls, with an 18 percent approval rating according to Metroscopia. The next general election comes at the end of the year.

But while the declarations of Podemos leaders may sometimes sound Venezuelan, their ambitions owe more to Xi Jinping than Hugo Chavez. Spaniards, like Greeks, have austerity fatigue. However, unlike Greece, Spain is not staring down a troika of foreign multilateral lenders, central banks and Brussels bureaucrats. While some at Podemos may not like the economic principles of the IMF, European Commission and European Central Bank, their primary demon is homegrown: corruption.

And this they have in abundance from Spain’s establishment, both the left and right. Every day brings a new revelation of despicable behavior from what Podemos supporters call “la casta,” the reigning elite. This is fueling the anti-cronyism that Podemos, and other new parties like the center-right Ciudadanos, are successfully channeling.

Take this week’s addition to the rap sheet: in 2007, the 20 politically appointed directors of the since-collapsed Caja Madrid received luxury watches worth 12,000 euros apiece, according to Expansion. The newspaper published excerpts of emails from directors and executives discussing how they could exchange the watches for credit at El Corte Ingles, the country’s largest department store.

The scandal is one of many. In October, weeks before Aena’s takeoff was postponed, details emerged of a 15 million euro scam in which 86 officers at Caja Madrid received “phantom” credit cards to spend as they wished. Caja Madrid became Bankia after merging with a handful of other savings banks – and required a 22 billion euro bailout.

Among the accusations stemming from the Bankia affair, former finance minister and IMF chief Rodrigo Rato was accused by prosecutors of using one of these cards while he was chairman. Financial royalty wasn’t alone in being touched by corruption. In June, King Juan Carlos I abdicated amid a series of scandals involving members of the royal family.

Podemos seems to recognize it is presently more a movement than a political party. It doesn’t even yet have a policy document, for instance. As Podemos co-founder and chief political analyst, Carolina Bescansa, told me in Madrid this week: “We are a real alternative to political corruption.”

It’s hard to say whether Podemos can be more than that. A lot will happen between now and the election. There will be regional contests. Podemos will need to unveil its programs – and defend them vigorously. The group’s leaders will also need to withstand public dissections of their own backgrounds and possibly their tax returns.

But even if Podemos has peaked, it has already done a service to Spanish capitalism, as the Aena episode illustrates. Markets defined by transparency, competition and clear rules of engagement are always superior to cronyism and favoritism. Podemos probably wouldn’t articulate its mission this way, but if that is the primary outcome of the movement, Spain is already the better for it.

2 comments

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Interesting views spoiled by two silly mistakes-
Ciudadanos tries to avoid left or right labels but is known as left of centre.
El Corte Ingles(largest)…..can you tell us which other department stores there are?

Posted by nadamasjohn | Report as abusive

“Spaniards, like Greeks, have austerity fatigue.”

Which is just a way to say they are “fatigued” by not having the state give them quite so much of other people’s money. What does any of this have to do with “capitalism”?

Posted by evilhippo | Report as abusive