There is a small chance that the political deadlock in Spain will be resolved this week. Despite the agreement on some 150 policy points, the Popular Party and Ciudadanos, the new center-right party, they will not secure a majority without the tacit support of some members of either the Socialists or the new left party Podemos.
With Brexit, the pressure on Italian banks, and the surge and then sell-off in the yen, Spain may have been pushed off some investors’ radar screens. There are three important developments to note.
By official decree, King Felipe VI approved a new election for June 26 after December elections resulted in a fractured parliament, according to the Associated Press. The June election marks the first reelection since Spain was under dictatorship and the southern European nation will remain under a caretaker government as political parties fail to reach a consensus. Experts warn that Spain’s economic gains could be in jeopardy if the next election fails to bring a resolution.
Spain’s Socialist Party is seeking a three-way alliance with Ciudadanos, a pro-business party, and Podemos, an anti-austerity party, but Ciudadanos remains hesitant due to political differences, according to Bloomberg. Spain’s parliament must form a ruling coalition by May 2; otherwise, Spain will commence another election. Spain’s Conservative party lost many allies during the December 2015 elections, and the Socialists intend to reach across the aisle to gain ruling status.
Popular Party (PP) Madrid chapter president Esperanza Aguirre resigned amid allegations of questionable funding sources, according to the Associated Press. She has been a long-time member of the party did not have a direct implication, but is taking full responsibility. The scandal is the latest in a string of charges against the PP, a center-right party that has faced considerable heat from critics over stagnant economic growth. Prime Minister Mariano Rajoy currently resides over a transition government as he attempts to form a new parliament.
Barclay’s analysts Apolline Menut and Antonio Pascual dispel the mainline narrative of a Spanish recovery, highlighting long-term unemployment, waning productivity and a high unemployment rate as unsustainable liabilities, according to Business Insider.
The job market gained a great deal of traction in 2015, but analysts note that Spain’s current status would prove catastrophic in other nations. Spain is one of the fastest-growing economies in the European Union, but unemployment stands at over 20 percent, with youth joblessness remaining over 55 percent.
The US dollar is narrowly mixed. The euro and yen remain within yesterday’s ranges, while sterling continues to trade heavily. The stabilization of oil prices has not lifted the Canadian dollar, while the other Antipodean currencies turn higher.
Emerging market currencies are mostly lower, though the South African rand is slightly firmer. The Russian ruble’s decline has been extended into the fourth sessions and brings its loss this month to 8.5%, the worst performing emerging market currency after the Argentine peso that sank as it was floated.
Prime Minister Mariano Rajoy’s center-right Popular Party endured a heavy blow over the weekend, falling short of the seats needed to govern accordingly, but still maintaining a majority, notes USA Today. The ruling government will have to share power with opposition parties, but the process will remain contentious, as incumbent officials must govern alongside leftist parties. King Felipe VI will act as broker and nominate a prime minister for approval by parliament.
Spain goes to the polls on December 20. The country’s political and economic dynamics are different from other EMU countries that have held elections this year. The economy is among the strongest performers in Eurozone, though unemployment remains stubbornly high.
Today is the last day that election polls can publish. El Pais and El Mundo papers published the results of surveys today. They confirm what many have come to expect. The ruling center-right Popular Party will remain the biggest party, but it will lose its majority.
Spain’s economic output grew at one of the fastest rates within the European Union due to stronger consumer spending, according to Reuters. The economy grew .08 percent when compared to the second quarter, and the economy expanded 3.3 percent for 2015.
Prime Minister Mariano Rajoy and cabinet members are banking that the good news will help them win the general election in December. However, the International Monetary Fund expects the economy to recede to 2.5 percent in 2016.
