In Spain’s elec­tion, the win­ner is … no­body

With­out a vi­able coali­tion, the coun­try may have to vote again “I told him there is zero chance of an agree­ment”

Bloomberg Businessweek (Asia) - - Contents - −Charles Penty and Este­ban Duarte

The puz­zle of the Span­ish elec­tions re­mains un­solved. The vot­ing on Dec. 20 failed to pro­duce a clear win­ner af­ter four years of ma­jor­ity rule by Prime Min­is­ter Mar­i­ano Ra­joy’s con­ser­va­tive Peo­ple’s Party: The PP led the pack with 123 seats in the lower house of Par­lia­ment; the so­cial­ists got 90; Pode­mos, a new far­left party, got 69; and the free-mar­ket Ci­u­dadanos party got 40. None

has the ma­jor­ity needed to form a gov­ern­ment on its own.

Ra­joy is call­ing for a broad coali­tion of the PP, the main­stream so­cial­ists, and Ci­u­dadanos. The so­cial­ists are balk­ing. “I told him there is zero chance of an agree­ment,” so­cial­ist party boss Pe­dro Sánchez said at a news con­fer­ence af­ter meet­ing with Ra­joy on De­cem­ber 23. Yet the so­cial­ists won’t form a gov­ern­ment with Pode­mos be­cause Sanchez’s party op­poses a ref­er­en­dum in Cat­alo­nia on in­de­pen­dence for the re­gion, while Pode­mos sup­ports it.

The post-re­ces­sion econ­omy, though ex­pand­ing, is still frag­ile. It will not get any di­rec­tion with­out a gov­ern­ment to guide it. The PP says its sig­na­ture poli­cies—re­duc­ing taxes and making it eas­ier to hire and fire work­ers—risk be­ing re­versed by a left-wing coali­tion. The Left says Spain needs in­vest­ment in so­cial ser­vices af­ter four years of aus­ter­ity. For now, cheap oil, low in­ter­est rates, and a weak euro should drive Spain’s re­cov­ery a while longer, what­ever the politi­cians do.

In­creas­ingly the most likely op­tion may be fresh elec­tions by April or May, be­cause the chances of a vi­able coali­tion emerg­ing any­time soon seem re­mote. Some an­a­lysts see re­peat elec­tions as an ad­van­tage for the PP, which could play on pop­u­lar fears of left­ist poli­cies to pick up enough votes—and seats—to form a gov­ern­ment.

Amid the po­lit­i­cal un­cer­tainty, the coun­try’s tough bud­get-deficit tar­gets are at risk. They were im­posed on Spain by the Euro­pean Com­mis­sion, the ex­ec­u­tive arm of the Euro­pean Union, as the price of a euro zone­fi­nanced, €41 bil­lion bank bailout in 2012 ($44 bil­lion to­day). Three of the four big­gest par­ties in the new Par­lia­ment promised vot­ers they’d per­suade the EC to ease Spain’s bud­get lim­its. Ra­joy’s PP in­sists it will meet the cur­rent goal of a 4.2 per­cent bud­get sur­plus, even though it never has. The EC says in 2016 Spain will again spend more than it’s bud­geted, by more than €8 bil­lion.

The bot­tom line Al­though Spain’s con­ser­va­tives lost the con­fi­dence of most vot­ers, they still have a chance to win if new elec­tions are held.

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