And Now Comes the Hard Part - Spain's December 2015 Elections
By Dr. Scott B. MacDonald
New York (KWR) December 21, 2015 - Spain's December 20th parliamentary elections have brought the Iberian country into uncharted political waters. As the results trickled in late Sunday, the country's two traditionally dominant parties, the ruling conservative Popular Party (PP) and the opposition Socialists (PSOE), saw their returns radically cut from past outings. Indeed, 2015 will go down in history as the worst result for the PSOE since the return of democracy in Spain in 1977.
The gainers, the far-left Podemos (We Can) and centrist Ciudadanos (C or Citizens), represent a major breakthrough on the long-time stranglehold of the PP and PSOE on Spain's electoral politics. As such, the new parties reflect public discontent with corruption in both older parties, sentiment that the PP and PSOE have maintained a lock on political power too long, and that they bear responsibility for Spain's economic crisis of the last few years. There is a desire among a sizable portion of the Spanish electorate for greater transparency, less corruption and constitutional reform.
The final results gave the out-going PP 122 seats, the PSOE 90 seats, Podemos 69 seats and Ciudadanos 40, with the remainder of the 350 seats going to a plethora of small regional parties. Although Prime Minister Mariano Rajoy declared his PP the winner with the right to be the first to attempt to form a new government, the process of finding coalition partners is going to be difficult.
Even if the PP is able to forge an agreement with Ciudadanos (the most likely partner), it would only have 163 seats, still short of the 175 needed to form a majority. This would make a potential PP-C coalition look to gaining support from some of the 20 seats from the smaller regional parties. There is no guarantee that such deal-making would result in a new government.
Another complicating factor for the PP is that any deal with C would most likely have a heavy price tag in that Prime Minister Rajoy would have to step down. The PP leader is not particularly liked within the ranks of Ciudadanos. A deal could be struck that might bring PP's younger and articulate number two, Soraya Saenz Santamaria, into the prime minister's office, but that is only a possibility if Rajoy is willing to step down. There is no certainty that he would go easily.
Matters become even more challenging when looking at the other options. Prospects for a "grand coalition" between the traditional rivals, the PP-PSOE, are not high. Once again, personalities of the leaders are one stumbling block and economic policy is another. The PP wants to continue to move ahead with structural economic reforms that include ongoing efforts to reduce the budget deficit. The PSOE wants to repeal some of the reforms already passed, in particular, pertaining to the labor market. Considering these differences it is dubious that the PP and PSOE can share a government.
Similar problems over personalities and policies exist between the PSOE and Podemos. The latter party has done much to change the political landscape and its first major outing on the national legislative stage elevated it into the major leagues, largely at the expense of the PSOE. There is a shared anti-austerity view, but it is questionable that the PSOE would be happy to share a government with a party that wants to bury it.
Spain's political landscape has become much more complicated and in some ways more fragmented, with differences being manifest on regional levels. Podemos leader Pedro Iglesias was proud to say on the evening of the election: "A new Spain has been born. The bipartisan political system is over." While this is probably accurate, elements of the old political system are not likely to quietly exit. After all, the PP and PSOE still won the majority of seats in a national contest with 73 percent voter turnout.
At the same time, Spain's economic problems have not gone away. Although real GDP is estimated to be at 3.2 percent in 2015, unemployment is still one of the highest in the Eurozone at 21.6 percent (as of October). Youth unemployment is a little under 50 percent. Spain is also struggling to hit its fiscal deficit targets and the country remains dependent on international capital markets to finance its external debt, which is around 100 percent to GDP.
The Rajoy government adhered to a tough austerity program, stabilized the banking system and tackled long overdue labor reforms. However, this economic medicine has been tough and unpopular, helping the rise of Podemos. There is some concern in markets that if Spain goes to new elections, Podemos could gain more seats, perhaps form a government and take Spain down the same track as Greece. Greece was notable where the hard left Syriza was voted into office, brutally collided over policies with the European Union and the International Monetary Fund, and eventually capitulated to reforms leaving behind considerable acrimony and an economy that is still struggling. Greece also injected considerable volatility into European markets.
It is important to clarify that Spain is not Greece - the political center has not collapsed, Podemos may be led by neo-Marxist former professors but the support base is more moderate, and the economy is far larger and diversified. Additionally, Spain, being the fourth largest economy in the Eurozone, has a little more leverage than Greece vis-à-vis the deficit hardliners led by Germany. Moreover, its debt levels are lower than Greece's.
But there remains more drama to come out of Spain. We believe that a PP effort to form a new government is likely to fail, especially considering what happened in Portugal in November where a newly elected minority center-right government was voted out of office by a coalition of three leftist parties. Spain's leftist parties have already stated that they would not let Rajoy form a new government.
The other drama that remains on the political landscape is the fate of Catalonia. The December election further fragmented the region's political community, leaving the question of separation from the rest of Spain now further complicated by uncertainty in who is in control in Madrid. Stated in another fashion, who can the Catalans negotiate with in Madrid? This issue is likely to become more pressing in 2016 and could add pressure on a European Union already dealing with major problems from a migration crisis from the Middle East and Africa, and is under assault from radical Islamic terrorist groups and a looming vote in the United Kingdom over whether to remain in the European Union.
Looking ahead, Spanish politics have entered new political territory. The rise of the new parties is clearly a challenge to the old parties, which in any competitive democracy is a good thing, especially if the process becomes less corrupt and more open. The downside is that the process can be volatile and messy. Along these lines, there are no easy roads to a new government in Spain. Another round of elections cannot be ruled out. Spain is not sinking into chaos, but its politics are going to be more challenging. This is something that a struggling European economy really does not need at this juncture.
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