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Spanish companies jostle for EU recovery fund billions

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Spanish blue-chips including Telefónica, Iberdrola and Seat are positioning themselves for tens of billions of euros in EU coronavirus aid they hope will transform their industries and benefit their bottom lines.

Spain expects to receive some €140bn from the €750bn EU coronavirus recovery fund, which leaders approved last week, making Madrid one of the biggest beneficiaries of the programme, along with countries such as Croatia, Bulgaria, Greece, Portugal and Romania.

Spanish companies have been drawing up proposals for projects co-financed by the aid, which will prioritise clean energy and digitalisation, in anticipation of a once-in-a generation transfer of resources. However as companies across Europe explore the potential benefits of the huge injection of public funds, some officials are warning against excessive optimism about the aid’s effectiveness.

According to draft Spanish government legislation on the management of the new funds, the industry ministry will compile a registry of interested groups that will have preferential consideration for carrying out projects, receiving subsidies or forming part of consortiums. The EU recovery funds are scheduled to be disbursed between 2021 and 2026 and divided roughly equally between grants and loans.

Where Spain's government intends to spend €72bn of EU grants between 2021-23

Telefónica, one of the groups that is seeking inclusion in the government list, has proposed that EU funds be used to help make Spain the first country in the bloc with 100 per cent fibreoptic coverage — by 2025 and at the cost of around €4bn. Current coverage is 75 per cent. The operator says the aid could also help roll out a standalone 5G network covering 85 per cent of the country by the same time.

“Spain could become the digital ‘Heathrow of Europe’, the destination for the cables that come to Europe from the US, Latin America, from Asia, wherever,” José María Álvarez-Pallete, Telefónica chairman and chief executive, told the FT. “We can offer an ecosystem for Nokia, Huawei, Ericsson, Samsung and the tens of others that could come.”

Iberdrola, the renewable energy group, would also like to be included in the government registry for managing the EU funds.

Telefónica chairman and CEO José María Álvarez-Pallete © Bloomberg

The €71bn company suggests aid be used to quicken the country’s push to drive down carbon emissions by investing in electricity storage, “clean hydrogen”, the replacement of domestic gas burning boilers and the installation of electric car charging points on the country’s motorway network — the most extensive in the EU. 

“This is a magnificent opportunity to transform our productive model into a more sustainable and competitive one,” Ignacio Galán, chairman and chief executive, told the FT.

While emphasising that his multinational group has already promised to invest €75bn over the next five years, Mr Galán argued that some green priorities still needed aid to become more economically viable, and that incentives would accelerate the electrification of energy-intensive industries.

Line chart of GDP at constant prices, annual % change showing Spanish economy has struggled to keep up with Europe this year

He added that public funds would allow Iberdrola to complete a €1.8bn project to use hydrogen to make fertiliser “much before” its current 2027 target date, as well as to accelerate another project to manufacture large-scale equipment to extract hydrogen from water.

“These are concrete projects that will need public support to be carried out,” he said.

Seat, the wholly owned Volkswagen subsidiary, has also called for EU co-financing of projects to roll out electric charging points and provide the infrastructure for fully wired factories.

“This is a unique chance for Spain,” said Josep Maria Recasens, Seat’s director of strategy. “We have to make a bold effort to identify the sectors with the best prospects . . . so they can be transformed through the intelligent use of these funds.”

Prime minister Pedro Sánchez’s government wants to begin EU-funded projects as soon as possible to overcome what it expects to be a contraction in GDP of more than 11 per cent this year.

Carmaker Seat is calling for the co-financing of projects to roll out electric charging points © Bloomberg

Cristina Herrero, president of Spain’s Independent Authority for Fiscal Responsibility, the country’s spending watchdog, said private sector expertise could play a vital role given the “demanding” timelines involved.

But she warned that previous national and EU plans had “crowded out” private investment by providing incentives for projects that would have been carried out in any case. She also argued that in areas such as digitalisation and training, Spain lagged other European economies “by so much that we cannot hope that the EU plan alone will be enough”.

Nevertheless, the government is hoping that the public-private collaboration will create a big multiplier effect. 

“According to analysts, each euro of public money invested could bring another four euros [from private investment],” María Jesús Montero, Spain’s budget minister, told the FT in an interview. “That’s the ratio that is expected from this investment.”

Ms Montero argued that universal access to high-speed internet would encourage companies to locate operations throughout the country. “If we are able to take broadband to 100 per cent of our national territory, the possibilities are almost endless,” she said.

She also emphasised that modernising Spain’s large cohort of small and medium-sized enterprises was a huge priority for the recovery fund. But this was also likely to involve bigger groups. 

Column chart of Sales, rolling 12-month (€bn) showing Sales have declined at Iberdrola and Telefónica recently

For example, Telefónica says its retail outlets could be used to help give training for SMEs to move procedures and services online — and suggests its experience of running a large-scale “reskilling programme” could help identify the training deficit for the Spanish population as a whole.

But Ms Herrero of the Independent Authority for Fiscal Responsibility said that the government’s plans to attract “co-investors” from the private sector were a departure from “traditional procedures in which the government designs projects and companies carry them out”. 

As a result, she said, it was all the more important to provide sober evaluations of risk and likely demand, and to ensure projects were assessed by an independent agency.

“Experience shows that we have to be prudent and avoid an excess of optimism,” she said. “We have to learn from the errors of the past.” 



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German ruling party backs Laschet as candidate to succeed Merkel as chancellor

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Armin Laschet has won the backing of Germany’s governing Christian Democratic Union in his bid to succeed Angela Merkel as chancellor, after a campaign that exposed deep rifts in the party five months before national elections.

Thirty-one of 46 members of the CDU’s executive committee backed Laschet in a secret vote, with his rival, Markus Söder, prime minister of Bavaria, receiving just nine, according to the party. There were six abstentions.

The result means Laschet is all but certain to be the centre-right’s candidate for chancellor in September’s Bundestag election, when Merkel will bow out after 16 years as Germany’s leader.

Söder, who is leader of the Christian Social Union, the CDU’s Bavarian sister party, had said he would accept a clear vote in favour of Laschet.

But the ballot revealed deep misgivings among senior Christian Democrats about Laschet’s suitability to run. The party executive had given its unanimous backing to his candidacy last week, but he garnered just 77.5 per cent of the vote, with 22.5 per cent going to Söder.

Laschet, 60, was elected CDU leader in January. But he has struggled in the polls, and many in the CDU/CSU bloc thought they had a better chance of winning the election with Söder as their candidate.

The chaos within the ruling party has also reflected its performance in the polls. The CDU surged to almost 40 per cent last year as voters rewarded it for Germany’s deft handling of the first wave of the coronavirus pandemic.

But its approval rating has slumped in 2021 as public anger mounted over the slow pace of Covid-19 vaccinations and the revelation that some MPs earned huge commissions on deals to procure face masks.

The CDU also faces a strong challenge from the opposition Greens, which some pollsters believed could take the chancellery in the election. The party chose Annalena Baerbock, a 40-year-old MP, as its candidate for chancellor, in a smooth process that marked a sharp contrast with the open power struggle in the CDU/CSU.

The son of a miner, Laschet studied law and edited a Catholic newspaper before being elected to the Bundestag in 1994. He served as a minister in the government of North Rhine-Westphalia, Germany’s most populous state, in the 1990s and became prime minister there in 2017.

Laschet is an ideological ally of Merkel and has said that if elected chancellor, he would continue her middle-of-the-road policies. He was long considered her natural successor.

But his popularity has suffered over the course of the pandemic, when he has come across as hesitant and erratic. By contrast, Söder, who earned a reputation as a decisive crisis manager, has seen his polling soar.

The poll ratings of Markus Söder, prime minister of Bavaria, had soared, but he said he would respect the CDU executive committee’s decision ahead of the vote © Reuters

Laschet was endorsed on Monday by some of the CDU’s most influential grandees, such as Wolfgang Schäuble, the former finance minister and Bundestag president, Volker Bouffier, prime minister of the western state of Hesse, and Ralph Brinkhaus, leader of the CDU/CSU parliamentary group.

But other members of the executive, such as Peter Altmaier, economy minister and a close Merkel ally, favoured Söder, a move that will badly dent Laschet’s authority.

The prime ministers of Saxony-Anhalt and Saarland also broke ranks with Laschet in recent days and threw their weight behind Söder, saying he enjoyed far more support among the party’s rank-and-file members. The powerful youth wing of the CDU, the Junge Union, also backed the Bavarian.

Söder garnered support among many CDU MPs who fear they will lose their seats in September if Laschet leads the campaign.

Some attendees of Monday’s meeting said the CDU/CSU parliamentary group and regional party bosses should be involved in any decision on who should run for chancellor.

But Laschet insisted that only the executive could decide and demanded a vote to resolve the issue. “We should decide today, as we planned to at the beginning,” he said, according to participants.

Söder made clear he would respect the CDU executive’s decision, telling reporters this week he had made the party a proposal “but only the CDU can decide if it wants to accept this offer”.



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After Afghanistan, China and Russia will test Biden

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“America is back” proclaimed Joe Biden, a few weeks ago. But in Afghanistan, America is out. The US president has just announced the withdrawal of all remaining American troops from the country. A 20-year war will end on the symbolic date of 9/11, 2021.

The watching world will wonder if a gap is emerging between White House rhetoric about re-engagement with the world, and a reality of continuing retreat. Biden insists that this is not the case. He argues that America has achieved its counter-terrorism aims in Afghanistan and now intends to “fight the battles for the next 20 years, not the last 20”.

But perception matters. The danger is that the pullout from Afghanistan will be seen outside America as a Vietnam-like failure that could eventually lead to the fall of Kabul to the Taliban, a replay of the fall of Saigon to North Vietnam in 1975.

Rival powers, in particular Russia and China, could now be emboldened to test the Biden administration’s resolve a little further. The obvious flashpoints are Ukraine and Taiwan. In recent weeks, the Kremlin has assembled more troops on its border with Ukraine than at any time since 2014 when Russia grabbed Crimea. Last week, China sent a record number of military jets into Taiwanese airspace. Both countries are combining military muscle-flexing with warlike rhetoric.

Biden himself has used confrontational language with Russia and China. He has called Vladimir Putin, Russia’s president, a killer and his administration has branded China’s actions in Xinjiang a genocide. The US also recently imposed sanctions on Russian and Chinese officials and has eased restrictions on American officials meeting their Taiwanese counterparts.

The strategic situation in Asia and Europe is similar in one key respect. The US has expressed strong support for both Taiwan and Ukraine, but neither country enjoys an explicit American security guarantee. The US relies on a policy of “strategic ambiguity” over Taiwan. The idea is that China should understand there is a strong chance that the US would fight to defend Taiwan, without a firm promise being made. In a similar way, the US has never spelt out what it would do if Russia launched a full-scale invasion of Ukraine.

Although Taiwan and Ukraine are separated by thousands of miles and involve different antagonists, the two stand-offs feel connected. Ivo Daalder, a former US ambassador to Nato, believes that: “Moscow and Beijing will look closely at how we react in one situation to set the stage for the other.” Daalder argues that “we need greater strategic clarity on what we would do if Russia moved militarily against Ukraine, or China on Taiwan”.

There are voices in the US calling for America to now make an explicit security guarantee to Taiwan, and for Nato to accelerate the process that would allow Ukraine to join its alliance. The hope is that these moves would deter Moscow and Beijing, and so reduce the risk of war starting by miscalculation. The argument against these policy changes is that China and Russia may interpret them as a threatening shift in the status quo — and feel compelled to respond. American allies in Asia and Europe may also feel that explicit security guarantees for Taiwan and Ukraine are too provocative. The joint statement issued by Biden and Yoshihide Suga, the Japanese prime minister, after a meeting last week, stressed the importance of peace in the Taiwan Strait, but remained vague about how Washington and Tokyo might respond if conflict broke out.

It would obviously be particularly difficult for the Biden administration to respond to simultaneous crises over Taiwan and Ukraine. Some western strategists are concerned that Moscow and Beijing may be co-ordinating their actions, to maximise the pressure on the Biden administration. They point to an increase in the frequency of high-level meetings between the Russian and Chinese governments. Beijing and Moscow also made statements, after a recent meeting between their foreign ministers, which signalled a deepening of their strategic relationship and a more open rejection of a western-led world order.

The internal situations in Russia and China may also be raising the dangers of conflict. Putin recently imprisoned Alexei Navalny, the most popular and dangerous opposition leader he has ever faced. Navalny is currently on hunger strike and may soon die, sparking further protests. The Kremlin knows that conflict over Ukraine boosted Putin’s popularity back in 2014. Another small war may look like a tempting option.

As the Chinese Communist party prepares to celebrate the centenary of its foundation later this year, President Xi Jinping may be looking for a triumph over Taiwan. American officials believe that Xi and his advisers have convinced themselves that the US is in deep and terminal decline. They fear that the Chinese leadership may believe the US would ultimately back down rather than fight over Taiwan.

But even the most confident and nationalistic officials in Beijing and Moscow will still be conscious of the risks of head-on confrontation over Taiwan and Ukraine. The likelihood is that Russia and China will continue to use “grey zone” tactics that stop just short of all-out conflict. As America discovered in Afghanistan, it is much easier to start a war than to control its outcome.

gideon.rachman@ft.com



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Alexei Navalny’s supporters say his life is ‘hanging by a thread’

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Supporters of jailed Russian opposition leader Alexei Navalny have called on Russians to protest against his harsh treatment in prison, saying that it could end in his imminent death.

Leonid Volkov, who runs Navalny’s foundation from exile in Vilnius, Lithuania, said in a video message on Sunday that the anti-corruption activist’s life was “hanging by a thread” 19 days into a hunger strike in protest at the prison’s refusal to let him see a doctor of his choice.

“However we might want not to think about it, distance ourselves, or change the subject — it doesn’t change the fact that they’re killing Alexei Navalny. In the most terrible fashion. In front of all of us,” Volkov said.

“And the question rises before all of us, whether we want it or not: are we ready to do something to save the life of a man who’s risked his own for us for many years?”

Yaroslav Ashikhmin, a cardiologist, posted test results on Saturday that he said showed Navalny had heightened creatine levels that could bring about kidney failure, as well as potentially fatal levels of potassium that could cause a cardiac arrest at “any moment”.

The sharp deterioration of Navalny’s health comes as the Kremlin appears increasingly resolved to eliminate the threat from President Vladimir Putin’s most prominent critic.

Russian prosecutors said on Friday they would move to have Navalny’s Anti-Corruption Foundation and his network of regional offices declared an “extremist organisation”, an unprecedented step that would essentially shut down his operations while exposing his team to potential criminal prosecution.

Navalny’s supporters described the crackdown on their group and his harsh treatment in prison as a “desperate attack” by the Kremlin in response to Putin’s declining approval ratings amid a years-long economic decline.

“If we don’t speak up now, the darkest times for free people are at hand. Russia will descend into total hopelessness. Peaceful political activity in Russia will be impossible,” Ivan Zhdanov, the head of Navalny’s foundation, said.

Navalny’s team called for the protest — which they called “the final battle between good and neutrality” — to be held on Wednesday evening on a square outside the Kremlin. Putin is set to give his annual state-of-the-nation speech to Russia’s elite just a few hours earlier.

The rally will be a big test of support for Navalny — and the Kremlin’s willingness to crack down on it — after a heavy-handed police response forced them to abandon protests over his arrest in more than 100 cities this January.

Navalny, 44, was arrested at a Moscow airport in January immediately upon returning from Germany, where he spent five months recuperating from a poisoning with the military nerve agent novichok.

He was then ordered to spend two and a half years in prison for missing parole meetings relating to a 2014 suspended sentence — including several while he was in a coma after the poisoning.

On Saturday, US president Joe Biden said Navalny’s treatment was “totally, totally unfair, totally inappropriate on the basis of having been poisoned and then on a hunger strike. Wrong”.

The Kremlin has denied any involvement in Navalny’s poisoning, imprisonment, and the terms of his confinement.

“He will not be allowed to die in prison, but I can say that Mr Navalny, he behaves like a hooligan, absolutely,” Andrei Kelin, Russia’s ambassador to the UK, said in an interview with the BBC on Sunday. “His purpose for all of that is to attract attention for him.”

Jake Sullivan, US national security adviser, told CNN on Sunday: “We have communicated to the Russian government that what happens to Mr Navalny in custody is their responsibility and they will be held accountable by the international community . . . [T]here will be consequences if Mr Navalny dies.”

Ursula von der Leyen, president of the European Commission, tweeted on Sunday: “I am deeply worried about Alexei Navalny’s health. He must immediately receive access to proper medical treatment. The EU continues to call for his immediate and unconditional release.”

Leonid Volkov, left, and Ivan Zhdanov at a press conference
Leonid Volkov, left, and Ivan Zhdanov are calling for Russians to protest against Alexei Navalny’s harsh treatment in prison © John Thys/AFP/Getty Images

Last month, Navalny was moved to a prison colony with a reputation for its harsh treatment of detainees.

He went on hunger strike in late March in protest at wardens’ refusal to let him be treated by a doctor of his choice for severe nerve pain from two herniated discs in his back, as well as sleep deprivation tactics he said amounted to “torture”.

Navalny’s team is likely to face significant difficulties organising the protest after prosecutors deemed their organisation “extremist”.

That designation equates Navalny and his supporters with neo-Nazis, al-Qaeda and the Japanese cult Aum Shinrikyo. It means his foundation’s leadership could be jailed for up to 10 years and supporters could face as many as eight years in prison for donating to it, according to Pavel Chikov, head of Agora, a legal aid foundation.

Since Russia declared the Jehovah’s Witnesses an “extremist organisation” in 2017, 463 members of the Christian denomination have faced criminal charges, while police have searched 1,416 homes of members of the group, Chikov said.

Several of Navalny’s top allies are under house arrest on charges of violating public health rules by organising unsanctioned protests for his release in January.

Police have detained Zhdanov’s elderly father, as well as several employees at Navalny’s regional headquarters in recent weeks.

On Friday, a court also sentenced Pavel Zelensky, a cameraman for the foundation, to two years in prison for writing two tweets deemed “extremist”.





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