Spain – Snap Election Brings Fresh Uncertainty

Voters will go to the polls to elect members of the national Parliament in late April, more than a year ahead of schedule, after Prime Minister Pedro Sánchez’s minority government failed to secure support for its 2019 budget. The impasse is partly attributable to the ideological incompatibility of the largest parties, which has precluded the establishment of a majority government, but also reflects the persistence of strained relations between the central government and the regions more than a year after the regional government in Catalonia organized an illegal independence referendum. The draft budget presented by the center-left government included an increased outlay for Catalonia, but the ERC and the PdeCat, both of which advocate independence for the region, made clear that they intended to vote against the spending plan.

Polling data indicates that Sanchez’s PSOE is the most popular party, favored by 25%–30% of voters, followed by its traditional rival, the center-right PP, which is polling closer to 20%. The centrist Cs is polling in high single digits, and its participation figures to be essential to any chance of forming a majority coalition after the elections. The leftist-populist Podemos is not far behind, but disagreements between the two top leaders over electoral strategy could alienate potential supporters, and an erosion of the party’s representation could weaken the PSOE’s ability to form a viable government if it finishes on top.

There is a growing risk that the upcoming elections could vault the far-right Vox into the role of kingmaker. The party barely registered on the political radar at the elections held in 2015–2016. However, its anti-immigrant stance and its adamant rejection of separatism have become more resonant in the wake of the August 2017 bombing in Barcelona and the subsequent independence referendum in Catalonia, and recent polls have put support for the party close to 10%.

A strong showing by Vox could facilitate the PP’s return to power at the head of either a majority coalition government that also includes Cs or a two-party minority administration that is supported by Vox on an informal basis. Although the restoration of a center-right government could bolster the confidence of investors, risks would include the potential for troubled relations with the EU as the government responds to Vox’s policy demands, and an escalation of tensions between the regional governments and a staunchly nationalist administration in Madrid.

Even so, political leaders might opt for such an arrangement as preferable to a prolonged delay in forming a government, an unwelcome prospect at a time when a global economic slowdown and Brexit uncertainty are already clouding the near-term outlook for the economy.

Since 1979, The PRS Group Inc., has been a global leader in quant-based political and country risk ratings and forecasts. This commentary represents a sneak peek from our upcoming political risk reports. For more information please contact us at (315) 431-0511 and sales@prsgroup.com, or explore a subscription to PRS Online and/or ICRG Online today to receive political risk updates.

Back to Insights