Spain facing new elections

In Spain, the lower house of the Spanish parliament rejected Prime Minister Sánchez’s draft budget by a clear majority on Wednesday. The Catalonian separatist parties, on whose support Sánchez’s minority government depends, voted against the budget along with conservatives and liberals. Sánchez had previously rejected the independence parties‘ demands to oppose, among other things, legal proceedings against the separatist leaders over the Catalan independence referendum in October 2017. So, new elections are very likely – again! Sánchez plans to make a related statement after a cabinet meeting today. Possible election dates are 14 or 28 April or 26 May, when Spaniards also vote in European, regional and local elections.

Based on current surveys, the Socialists would represent the strongest faction in parliament, although a parliamentary majority would remain a long way off. Even a potential coalition with the left-wing populist Unidos Podemos currently only achieves around 40%. It is to be assumed Madrid’s MPs will take the „Andalusian coalition model“ as their template, where an alliance was agreed between conservatives and liberals. Since the allies could only form a minority government, the ultra-right VOX – which entered a regional parliament for the first time with 11% – played a key role. The Andalusian coalition model thereby forms a new alliance option in the Madrid parliament for the first time. This is not good news for Catalan separatists: they will have to expect a tougher stance from Madrid.

The current political uncertainty could prompt investors to adopt a critical attitude in the short term. However, it is to be expected that this situation will not persist for long. In the medium term, the factor of early elections is likely to recede into the background. A month-long political impasse, such as in 2016, is meanwhile expected to be much less likely, as election polls suggest political voting ratios have shifted. Investors might also welcome the prospect of a conservative-liberal alliance, hoping it will lead to pro-market reforms. Spain’s economic growth is also particularly noteworthy in an EMU comparison. Despite current Europe-wide economic pessimism, Spain should report the strongest (real) economic growth in the EMU this year after Ireland, at around 1.9%.

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