Spain’s Socialists carve out coalition cabinet focused on economy

By Belén Carreño and Ashifa Kassam

MADRID (Reuters) – Spain’s first coalition government since the return to democracy began to take shape on Friday, designed to pacify markets nervous over a slowing economy, global trade tensions and the Socialists’ reliance on the far left.

After a cliffhanger vote on Tuesday that saw Socialist leader Pedro Sanchez chosen to form a new government, a steady trickle of announcements have sketched out one of Spain’s largest cabinets in recent decades. It is tasked with forging consensus among a shaky patchwork of alliances to pass laws.

The new government’s emphasis will be on the economy, Socialist sources told Reuters, as forecasts suggest growth will slow from 2.1% in 2019 to 1.8% this year.

Sanchez’s government will include four deputy prime ministers – a first in modern Spanish history – three of whom are women.

Nadia Calvino, in charge of the economy ministry since 2018 and last year floated as a candidate to replace Christine Lagarde in running the International Monetary Fund, will coordinate economic affairs and digital transformation.

Teresa Ribera will focus on the environment and rural depopulation, while Carmen Calvo will be responsible for parliamentary relations and recognizing victims of the civil war and Francisco Franco’s dictatorship.

The fourth deputy prime minister will be Pablo Iglesias, the leader of Unidas Podemos, who will handle social rights and sustainable development. The far-left party will also take four ministries, ranging from higher education to consumer affairs.

ECONOMY DOMINATES

A senior Podemos official told Reuters the party was caught off guard by the addition of a fourth deputy prime minister, which he saw as a bid by the Socialists to limit Iglesias’ influence.

“We want to make it clear that the area of economics will be key in this legislature,” a source close to Sanchez told Reuters. “And that the Socialists hold the reins of the economy.”

The government’s desire to prioritize the economy colored several of its choices. Arancha Gonzalez Laya, currently assistant secretary-general of the United Nations and a former World Trade Organization official, will replace Josep Borrell as foreign minister.

Jose Luis Escriva, head of Spain’s budget watchdog and former chief economist at Spanish bank BBVA, will lead the ministry responsible for social security – charged with carrying out the long-awaited pension reform – as well as migration.

In an analysis, JP Morgan bank said it saw “no significant systemic risk implications” in the blend of ministers.

“We don’t expect a left-wing government to behave anything like we saw in Italy, where two different breeds of populism, both with euro-sceptic components, drove policy making to extremes, severely undermining growth and fuelling major financial markets tensions,” it said.

Ratings agency Fitch, however, suggested the political uncertainty behind four elections in as many years and which forced the Socialists to court Catalan separatists in their bid to form government would remain the Achilles heel.

“The government only narrowly secured parliamentary backing, and the Catalan regional government’s policy of pursuing independence remains a potential source of political volatility,” it said in a note.

(Reporting by Belén Carreño; Writing by Ashifa Kassam; Editing by Andrew Cawthorne)