Another election in Spain, but nobody seems too worried
With yet another election on the horizon, Spain feels as if this is one of Europe’s most politically fractured countries. And yet investors are not worried.
Why? The markets sense a still-robust economy and a proEuropean consensus.
That was not the case in Italy and Brexit-battered Britain, two countries that also flirted with imminent elections while their euroscepticism waved red flags.
So even if Spaniards do go to the polls on November 10 for the fourth time in as many years, who cares.
Stocks rose and the spread between 10-year Spanish and German bonds narrowed.
Spain’s mainstream parties have been struggling to form governments since 2015.
While the stalemate is a cause of angst, the splintered politics have kept the more extreme populist fringes at bay. If anything, Spain feels more integral than ever to the EU.
“This is not political instability as we see in Italy,” said Alfonso Benito, chief investment officer at Spanish asset manager Dunas Capital. “Both parties with real chances to lead a government are mainstream parties, both pro-Europe and that’s what markets care about.”
There is little reason to expect that any government that might emerge will do things such as raise taxes excessively or start overregulating business. The unresolved Catalan question remains the country’s biggest headache. A climate of ultra-low interest rates helps keep things ticking along.
King Felipe decided on Tuesday that there was no chance of a government being formed. This decision has set the constitutional monarchy on course for elections in two months. In April, Pedro Sanchez’s Socialists emerged as the biggest party but he was short of an overall majority in parliament. Sanchez is acting prime minister, and the talks to secure the support of the anti-austerity party Podemos have led nowhere.
The thinking right now is that in a new election Sanchez might be able to raise his standing and somehow manage to do without a pesky, unreliable ally that would force his hand into potentially market-unfriendly measures. Still, this is not to say that nobody is worried about what is happening in Spain.
The chair of the country’s main business lobby has described the deadlock of the past four years as a “lamentable spectacle”.
One likely scenario is that a new minority socialist government emerges but finds it cannot pass a budget or enact basic economic reforms.