Spain: Politics is back – HSBC

Fabio Balboni, European Economist at HSBC, notes that the head of the Spanish parliament has announced that a confidence vote against Mariano Rajoy's minority government will take place on 13 June which was requested by radical party Podemos and this implies that politics are once again back in the forefront.

Key Quotes

“Podemos has 71 MPs in the 350-seat parliament and, so far, has failed to attract the support of other parties, meaning the vote would have got little attention in the markets had it not been for the re-election, on 21 May, by Pedro Sánchez as leader of the socialist PSOE.”

“The PSOE – the main opposition party with 85 MPs – has remained on the sidelines of parliamentary activity, helping make the government of the Partido Popular (PP) more stable than the number of MPs (137, 39 short of an absolute majority) would suggest. But, Mr Sánchez's election could change this.”

“Mr Sánchez has said he intends to become Prime Minister (El País, 21 May), but will focus first on re-uniting his deeply divided party and rebuild electoral support, with polls suggesting the PSOE is trailing the PP by some 12ppts. He had opposed last year's abstention by the PSOE in parliament to allow the formation of the PP government. Thus Mr Sánchez would need to decide whether to join forces with Podemos to oust the PP government and try to form a left-wing government (jointly they have 156 MPs, more than the PP but still short of an absolute majority) or try to boost his chances in an upcoming election, possibly at the expense of Podemos (polls suggest he stands a good chance of doing so).”

“Podemos has already stepped up the pressure on Mr Sánchez, offering to withdraw his confidence vote request (this can be done until the last minute) if the PSOE had put forward its own, which Podemos would have supported (El País, 22 May). The timing of the confidence vote, just ahead of the PSOE party congress on 16-18 June, makes it unlikely the PSOE will take up the offer (El País, 22 May), and Podemos alone won't have the numbers to win the vote. But even if Mr Rajoy survives this confidence vote, there will be other occasions in the future, starting with the debate on the 2018 budget in the autumn (the 2017 budget due to be voted next week should not represent a threat in our view given the support of smaller regional parties). This points to rising risks of political instability and possible early elections.”

“Meanwhile, the pro-independence Catalan government remains committed to hold an independence referendum in September and is threatening to proceed unilaterally with the establishment of regional bodies (eg. Treasury, Social Security) if Madrid won't agree to it (El Paìs, 22 May), which adds to the political uncertainty.”