Spaniards returned to the polls on Sunday, June 26 for the country’s second national election in six months. This came just three days after the UK surprised markets by voting to leave the EU.
Two key takeaways:
- While the election did not result in a majority/ stable government (again), Spanish voters moved incrementally back toward the “status quo” fiscal policy, which is supportive of the current comparatively robust economic growth of the last few years. Importantly, this election result appears to have weakened the position of the anti-austerity parties in Spain.
- No ‘eurozone skeptic’ party was meaningfully empowered by the result. Despite this fact, there was a severe market reaction post-Brexit in Spain and Italy, on fears that it would start a chain reaction leading to the break-up of the eurozone. See our Insight “Thoughts on Brexit and its Impact on the European Banks” (June 24th).
Some background: in December 2015, after four years of majority rule that included corruption scandals and harsh but necessary (and effective) austerity measures, the People’s Party (PP, Partido Popular) lost its hold on Spain’s national assembly. In fact, the December results were highly fragmented, with no party taking a majority and the two establishment parties – the aforementioned centre-right PP and the centre-left Spanish Socialist Workers’ Party (PSOE, Partido Socialista Obrero Español) – losing meaningful representation to new upstart parties – the radical socialist and anti-austerity party, “We Can” (Podemos), and the centrist Citizens party (Ciudadanos).
The most recent election was called in early May by Spain’s King Felipe IV after the various parties were unable to agree on a coalition or minority government following December’s split decision. Polling into the June election suggested another split result, but with gains by the anti-austerity party.
In the end, the polls were wrong. The conservative PP received 137 seats, as it stole votes from the other parties. In fact, it was the only party to see an increase in seats from December. Unidos-Podemos saw its seats unchanged, leaving it third place overall.
Although uncertainty remains in Spain, political analysts expect the PP’s ‘win’ to aid negotiations with the other parties. We wait for an agreement to form a centrist-government, which we would expect to be received positively by markets.
Overall, we consider the election result a marginal positive. If, at a time of considerable disillusionment with the establishment parties, the anti-austerity party could not make a bigger dent, it would seem unlikely that they will see their power rise as long as the government in place can continue to improve Spain’s economy, and the fortunes of its citizens.
 Podemos had recently struck an alliance with small leftist party Izquierda Unida to form Unidos-Podemos (‘United We Can’).