Financial Times Europe - 13.11.2019

2 ★ FINANCIAL TIMES Wednesday13 November 2019

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I N T E R N AT I O N A L

DA N I E L D O M B E Y— MADRID

Spain’s ruling Socialist party has struck
adealwiththeradicalleftwingPodemos
that opens the door to the country’s first
coalitiongovernmentinmoderntimes.
Pedro Sánchez, caretaker prime min-
ister and Socialist leader, and Podemos
leader Pablo Iglesias announced the
dealyesterday,barely48hoursafterthe
country held inconclusive elections in
whichbothpartieslostseatsandthefar-

rightVox party ade big advances.m

Reflecting the haste with which the

agreement was put together, there were

few policy details and no personnel

announcements, although Mr Iglesias

would be expected to become a deputy

primeminister.

“Our country urgently needs a new

government as soon as possible,” Mr

Sánchez said. “This is going to be a thor-

oughlyprogressivegovernment.”

The Socialists and Podemos still need

to win parliament’s backing for their

proposed coalition, which would bring

the far-left into government for the first

time since the Spanish civil war. Their

combined forces — the Socialists have

120 seats and Podemos 35 — also fall far

short of a majority in the 350-seat

chamber. No vote on a new government

can take place until parliament recon-

venesnextmonth.

The prime minister, who hugged Mr

Iglesiasattheendoftheannouncement,

had resisted even talking to him during

previous negotiations over the summer

and said in September that a coalition

with Podemos would keep him up at

night.

Podemos wants to increase tax and

spendingbymorethantheSocialistsdo,

has taken a more accommodating line

towards Catalan separatism — the most

divisive political issue in the country —

and was involved in a battle with Mr

Sánchez’s party for years for the leader-

shipoftheSpanishleft.

ButtheSocialists’performanceonthe

November10electioncameinconsider-

ably shy of Mr Sanchez’s ambition of

securing enough deputies to lead a sta-

ble minority government and left him

with little alternative to a deal with his

far-leftrivals.

Mr Iglesias, who had called for a coali-

tion during the campaign, labelled the

agreementa“historicopportunity”that

combined the Socialists’ experience

with Podemos’s courage. He added that

a focus on social justice and on dialogue

asameansofaddressingtheCatalancri-

sis was “the best vaccine against the

extremeright”.

But the prospect of a far-left govern-

ment has unnerved some business

groups. “A coalition between the Social-

ists and Podemos would probably be a

government of higher spending and

more taxes, which is precisely the oppo-

site of what Spain needs,” said John du

Zulueta, chairman of the Círculo de

Empresarios, one of Spain’s biggest

business lobbies. He added that such a

government would be unstable and not

lastthefullfouryears.

“Wehavetosaythisisveryworrying,”

said Pablo Casado, leader of the main

centrerightoppositionPeople’sparty.

M E H R E E N K H A N— BRUSSELS

DA N I E L D O M B E Y— MADRID

A senior adviser at the European Court

of Justice has given a boost to Carles

Puigdemont, the former Catalan leader

who fled Spain to avoid prosecution, by

arguing that Madrid cannot stop peo-

ple elected to the European Parliament

from seeking judicial immunity.

In a non-binding opinion closely

watched by both Catalan independence

campaigners and the Spanish govern-

ment, Maciej Szpunar, an advocate gen-

eral at the ECJ, argued that MEPs gain

their status as elected representatives

fromthemomenttheyareelected.

Mr Szpunar was addressing the case

of Oriol Junqueras, a former deputy

head of the Catalan regional govern-

ment. Mr Junqueras was elected as an

MEP in May but was unable to take up

his seat. Instead, he was not allowed to

takeanoathontheSpanishconstitution

while in preventive detention over his

part in a botched 2017 independence

bid. Spanish law requires new MEPs to

swearsuchanoath.

Mr Puigdemont, whofled to Belgium,

and a third pro-independence politi-

cian, Toni Comín, were elected to the

European Parliament alongside Mr Jun-

queras in May and have also not been

abletotakeuptheirseats.

“In fact, this will have more effect on

Puigdemont than on Junqueras,” said

Gonzalo Boye, the former Catalan

leader’s lawyer. “They agreed with all of

ourarguments.”

Lawyers for Mr Junqueras had argued

that as an MEP, he qualified for immu-

nity but was stripped of his fundamen-

tal rights by Spanish judges who refused

him permission to swear the oath of

office. The European Parliament

refused to join the case, arguing it would

defertonationaldomesticrules.

In his opinion, Mr Szpunar argued

that taking an oath to respect the Span-

ish constitution was not a step in the

processofbeingelectedanMEP,adding:

“The parliamentary mandate may be

acquired solely from the electorate and

may not be conditional on the comple-

tionofanysubsequentformality.”

But he said Mr Junqueras ceased to be

an MEP last month when Spain’s

Supreme Court found him and eight

other pro-independence leadersguilty

of sedition or their roles in the 2017f

independence bid. Thecourt sentenced

Mr Junqueras to 13 years in prison and

disqualifiedhimfrompublicoffice.

The advocate general also said the

European Parliament should decide

whether MEPs’ immunity should be

waivedorupheld.

His opinion does not have legal force

but is likely to set the tone for a final

judgment in Mr Junqueras’s case in

comingmonths.

“Oriol should be sitting in the Euro-

pean Parliament, like Toni Comín and

myself, because this was the election of

more than 2m people,” Mr Puigdemont

wrote on Twitter after the opinion was

issued.

mmediately after last month’s ver-I

dict on Mr Junqueras and the other sep-

aratist leaders, the prosecutor in the

sedition case reactivated a uropeanE

arrest warrant requesting Mr Puigde-

mont’s extradition to Spain from Bel-

gium,aprocessthatiscontinuing.

Madrid

Spanish Socialists strike deal with far-left

Business voices concern at

accord between Sánchez

and Podemos leader

Puigdemont case

Ex-Catalan

leader’s bid

for immunity

given boost by

court adviser

M A RT I N A R N O L D— FRANKFURT

Italian banks have rushed to borrow

moreto benefit from a change in the

European Central Bank’s interest rate

policy,said the country’s central bank.

The amount that Italian banks borrow

from banks elsewhere in the eurozone

has increased, as has the amount they

have on deposit at the ECB, recently

published data show — a process that

has begun to deliver the banks a profit

ontheinterestratedifferential.

The amount of money Italian banks

hold in current accounts at the ECB rose

by €37bn in October,datafrom the

Banca d’Italia show. At the same time,

Italy’s net interbank liabilities within

theeurozone,measuredbytheECB’sso-

called Target2 system for settling cross-

borderflows,fellbyarecord€48bn.

A country running a Target2 deficit is

paying out more to other eurozone

countries via the banking system than it

is receiving; the reduction in Italy’s net

liabilitiesreflectsaninflowofmoney.

The shifts suggest Italian banks are

taking advantage of an arbitrage oppor-

tunity offered by a recent change in ECB

interest rates. Eurozone banks have

been partially exempted from the ECB’s

negativedepositratesinceOctober30.

While all eurozone lenders benefit

from thistiering system, it only covers

part of their existing deposits at the cen-

tral bank in most cases.Yet Italian

banks had enough headroom to raise

their central bank deposits by €35bn

andstillbecoveredbytheexemption.

The latest Target2 data offer evidence

thatItalianbankshaveborrowedatneg-

ative rates from banks elsewhere in the

eurozone and deposited the cash at the

central bank for free, making a profit on

thedifference,analystssaid.

Frederik Ducrozet, a strategist at

Pictet Wealth Management, said: “The

large decline in Italy’s Target2 balance

in October looks consistent with Italian

banks arbitraging their unused reserves

exemptions under the ECB’s tiering sys-

tem by borrowing more in the euro area

interbankmarkets.”

TheECBdeclinedtocomment.

Arbitrage push

Italy’s banks swift to benefit

from ECB’s negative rates

G U Y C H A Z A N— BERLIN
M A RT I N A R N O L D— FRANKFURT

The spectre of recession is stalking Ger-
man boardrooms but Berlin-based
building companyK Rogge Spezialbau
canbarelykeepupwithdemand.
Figures published later this week are
expected to show that German gross
domestic product contracted for the
second quarter in a row, confirmingthe
country is in recession. Exporters are
suffering and industrial production has
beenindeclineforayearandahalf.
But the domestic economy is in rude
health. Investor sentiment is rebound-
ing , according to the monthly Zew sur-
vey of financial market experts, pub-
lished yesterday. Sentiment about Ger-
many’s economic outlook jumped from
minus22.8inSeptembertominus2.1.
K Rogge is typical of the continuing
strengthofGermany’sservicesindustry.
With Berlin in the grip of an extended

building boom, its order backlog

stretches into next summer. ow inter-L

est rates are prompting millions of Ger-

mans to invest in real estate, said Klaus-

Dieter Müller, the company’s head of

stucco works, and “the whole construc-

tionindustryisbenefiting,usincluded”.

That contrasts with the experience of

Continental, the German automotive

supplier. In September it warned of an

“emerging crisis” in the auto industry

and unveiled plans for a huge restruc-

turingthatwouldput20,000jobsatrisk

worldwide.

Continental is not alone. German

exporters are being hurt by thetrade

war ,Brexituncertainty ndaa bigdropin

auto production, down 9 per cent in the

first 10 months of the year. Industrial

weakness was a key reason for the0.

per cent contractionin German GDP in

thethreemonthstoJune.

Yet the overall picture is mixed. Ger-

man industrial production shrank by

1.3 per cent in September, while output

in the construction industry rose by 1.

percent.

Germany’s Council of Economic

Experts, which advises Angela Merkel’s

government, last week said there was a

“dichotomy” in the data. “While indus-

try is in recession, the service sector has

up to now been robust,” they said.

Record high employment and a rise in

disposable incomes were “supporting

consumerdemand”.

Jens Ulbrich, chief economist at the

Bundesbank, said Germany had “a two-

speed economy”. “The divergence

between domestic and export sectors is

quitestriking,”hesaid.

Yet economists fear the two will ulti-

mately converge again, if the industrial

malaise ripples out to infect other

sectors.

“The longer the weakness in industry

persists, the more likely it is that it will

spreadtothewholeeconomy,”thepanel

of experts warned. The first signs of a

wider downturn are already beginning

to emerge, they said, with unemploy-

ment plateauing and a decline in the

numberofvacanciesbeingadvertised.

“Companies’ expectations in the serv-

ice sector have also deteriorated,” the

panelsaid.

In its latest outlook, IHS Markit said

business confidence across the German

private sector had slipped to its lowest

level since the global financial crisis.

Outputofgoodsandservicesisexpected

to fall slightly over the next year, while

companies have signalled their inten-

tion to cut workforce numbers for the

firsttimein10years,IHSMarkitsaid.

“German business expectations have

fallen off a cliff since the summer,” said

Phil Smith, the data group’s principal

economist. “Germany is looking like the

sick man of not only Europe, but glo-

ballyaswell.”

Isabel Schnabel, a member of the

economists’ panel and Berlin’s nominee

to join the ECB’s executive board, said

there was a lively debate on the council

about how entrenched Germany’s

downturnwouldbeandhowtorespond.

Some economists have argued for a fis-

cal stimulus to pre-empt a more severe

contraction.

“In real time you can never say what

part is cyclical and what part is struc-

tural, so you have the danger of doing

something that ends up being procycli-

cal,”shesaid.

Mr Ulbrich said calls for government

actionweremisplaced.“Whywouldyou

argue for a large discretionary fiscal

stimulus in an economy with high

capacityutilisation?”hesaid.

Others say ministers must act now to

headoffthethreatofadeeperrecession.

Eric Schweitzer, head of the Association

of German Chambers of Commerce and

Industry, said there were already signs

thatthedownturnwasspreading.

But officials have so far rejected calls

for a stimulus. Olaf Scholz, finance min-

ister, insists that Germany’s economic

prospects remain bright, despite the

badnewsfrommanufacturing.

EU powerhouse. ecession fearsR

German economy stagnates despite construction boom

Data areexpected to show

growth has shrunk for

second quarter in a row

German economic growth

expected to pick up

Annual  change

Source: German Council of Economic Experts

GDP GDP per capita









   

Forecast

Sikhs light candles to mark the

birth anniversary of Guru Nanak

at the Golden Temple, the holiest

of Sikh shrines, in the Indian city

of Amritsar yesterday. Sikhs across

the world also joined in the

celebrations for the founder of their

religion.

Light show

Sikhs mark

founder’s birth

Picture: Prabhjot Gill/AP

JA M E S S H OT T E R

CENTRAL EUROPE CORRESPONDENT

Moldova’s fragile coalition government

collapsedyesterday after a dispute

between its members over how to

appoint the eastern European nation’s

top prosecutor.

For the past five months, Moldova has

been run by analliance between a pro-

westernparty and pro-Russian Social-

ists, whoteamed upto oust party leda

bytycoonVladimirPlahotniuc.

The coalition parties made it a prior-

ity to fight corruptionbut disagreed on

how to appoint the prosecutor-general,

triggering a dispute that culminated in

yesterday’s vote of no confidence

againstprimeministerMaiaSandu.

“Today not only a government that

defends the interests of the people was

betrayed, but also every citizen who

hopes that justice will be done and that

their lives will be better,” Ms Sandu

wroteonFacebookafter63oftheparlia-

ment’s101deputiesvotedagainsther.

Her administration’s defeat means

Moldova’s partieshave 90 days to form

another government. If they cannot

fresh elections will be called, raising the

prospect of further instability. The EU

and Russia have long vied for influence

in Moldova, a country of 3.5m people

wedgedbetweenRomaniaandUkraine.

JohannesHahn,theEUcommissioner

responsible for the bloc’s enlargement

policy, saidthe collapse of Ms Sandu’s

government “sends worrying signals for

thereformprocessinthecountry”.

“The country has started a number of

initiatives to deliver on the key commit-

ments made since June notably in the

fields of the fight against corruption,

independence of the judiciary, and

investigationintothebankingfraud,”he

said, referring to ascandal nvolving thei

theft of $1bn, then worth about one-

eighth of national output, from

Moldova’sbankingsystemin2014.

Igor Dodon, Moldova’s pro-Russian

president,warned foreign officials that

thegovernmentmightfallasMsSandu’s

ACUM party and the Socialists argued

overaprosecutor-general.

Eastern Europe

Moldova coalition collapses

over nomination dispute

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FEBRUARY 4^2
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THE RISE OF ECO-GLAM
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