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24th Aug 2019

EU to warn Spain on political deadlock

  • Outgoing PM Rajoy (with light-blue tie) in parliament earlier this month. Rajoy admitted he lacks a majority support for a new government (Photo: La Moncloa Gobierno de España)

The European Commission is preparing to voice worry about the effect of “political risks” in Spain on the country's economy, Spanish newspaper El Pais reported on Sunday (24 January).

“The difficulties of forming a government could slow down the agenda of reforms and trigger a loss of confidence and a decline in market sentiment,” the paper quotes from a draft commission document, due out in February.

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Spain's voters shattered the political landscape in elections last month by electing candidates from two newcomer parties, leaving no single party with an overall majority.

The commission has so far refrained from saying too much about the political situation in the EU's fifth most populous member state, which is recovering from a financial crisis and a 2012 bank bailout.

The document El Pais quoted from is a draft version, and subject to change. The commission will present its so-called country-specific recommendations in the context of its European Semester next month.

The country is suffering from one of the highest shares of unemployment in the bloc, with 21.4 percent recorded last November, according to Eurostat (the EU average was 10.5 percent).

Youth unemployment, although slowly dropping, is still sky high at 47.5 percent.

The economic woes are one of the reasons behind the electoral success of left-wing anti-austerity party Podemos and centre-right Ciudadadanos, both entering the national parliament for the first time, respectively winning 69 and 40 seats in the 350-seat lower house.

No support in parliament

After a month of little progress in a country that is unfamiliar with coalition talks, Podemos leader Pablo Iglesias said on Friday (22 January) that he would like to form a “government of change” with the centre-left socialist party PSOE and the left-wing United Left.

But PSOE leader Pedro Sanchez, whose party lost 20 seats in December, did not immediately accept Iglesias' offer. He said Friday that outgoing prime minister Mariano Rajoy, the leader of the centre-right Popular Party (PP), should try to form a government first.

However, Rajoy told the Spanish king on Friday evening he would not do so, after realising he did not have the support in a required confidence vote in parliament.

The PP emerged from the elections as the largest party with 123 seats, but falling short of an absolute majority and losing 63 seats, it may end up a Pyrrhic victory.

He would have had to try to gain support from a majority of parties in a parliament session likely to be held over the coming weeks.

On Wednesday (27 January), king Felipe VI will hold new talks with the party leaders to find another candidate. It is not unlikely that he will ask Sanchez to ask for the confidence vote.

If two so-called investiture sessions fail to produce a government, new elections will have to be held in late May, according to El Pais.

Catalan independence

Spain is also facing an independence drive by the wealthy Catalan region. Two weeks ago, political parties were able to form a regional government there despite many policy differences.

Days after relatively unknown compromise candidate Carles Puigdemont took office with the promise “to start the process to set up an independent state in Catalonia”, private ratings agency Moody's downgraded the region from “stable” to “negative”.

“The new regional government's main focus will be on the region's independence. We believe that the region's plans could negatively affect the investment climate in the region and, potentially its tax collection,” Moody's said in a statement on 15 January.

But over the weekend, Spain's centre-right caretaker finance minister, Luis de Guindos, told newspaper El Mundo that markets have a greater fear of participation of Podemos in the national government, than of the events in Catalonia.

Rajoy's 'very open' agenda

Rajoy, who said he would make sure Spain remains one country, apparently still has to get used to the sound of Puigdemont's voice.

A Catalan radio show successfully pulled a prank on Rajoy last week, by having a Puigdemont impersonator speak on the phone.

Rajoy seemingly believed it was the actual president of the Catalan region and told him he wanted to meet him.

“I can call you on Monday the 25th, and depending on how busy we are, we can set a date. My agenda is very open and we could do it 24 to 48 hours later,” said Rajoy.

At that point, the pranksters confessed, adding they “didn’t think it was going to work”.

Spain ends two-party system, coalition talks ahead

Rajoy's centre-right PP came out of the election as largest party, but faces a difficult search for coalition partners. Anti-austerity newcomer Podemos bursts onto political scene.

Analysis

Who will govern in Spain?

If Spain's main parties are not be able to create a strong coalition and elect a stable government there is no other solution than to call a new election by mid-March.

Fragile EU growth at risk

The commission expects Europe's economic recovery to continue. But slowing Chinese growth, low oil prices and geopolitical tensions threaten to undermine progress.

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