Spanish Prime Minister Mariano Rajoy was ousted today by a no-confidence vote in Parliament. A total of 180 out of 350 MPs voted against Rajoy, who must now notify the King of Spain of his withdrawal from office. The new head of government is set to be Social Democrat Pedro Sánchez, who successfully initiated the no-confidence vote with the support of the left-wing populist Podemos party and Basque separatists. Sánchez and his PSOE party do not enjoy a parliamentary majority, however, with Spain now potentially facing a period of political instability. Although Sánchez could theoretically remain in office until regular elections in summer 2020, we believe pressure will soon mount for him to step down to make way for new elections. We expect especially the Ciudadanos party to press for new elections, as the liberals are heading opinion polls. By contrast, the PSOE would, in the case of new elections, currently have to fear to secure only third place, even behind Rajoy’s PP. For this reason, we believe Sánchez might exploit his poor opinion poll ratings to make the tactical move of first staying in office for some time in order to boost his popularity ratings. In this case, we would expect elections to occur in some months‘ time, rather than sooner.
Spain has experience with political stalemates. After the last two parliamentary elections in December 2015 and June 2016, it took a total of ten months until a government could be formed. Then, as now, a period of political deadlock is to be feared given the lack of clear parliamentary majorities. Firstly, Spain is losing valuable time for reforms. Secondly, we expect investors to hope especially that the structural changes that have already been implemented will not be reversed. Fundamentally, Spain is also in a good position on an EMU comparison, despite the Catalonia crisis. Perhaps Sánchez will even succeed in bringing some momentum into this crisis. While Rajoy adopted a hard-line approach, the PSOE is seen as more consensus-oriented. If Sánchez even succeeds in bringing peace to the conflict, the political tide might also start to turn to his benefit.