What To Expect From The Weekend’s Spanish Elections

27th April 2019 Off By binary

By Orbex

This Sunday the 28th, the Spanish are going to the polls again, with one of the first major elections scheduled in Europe for the spring.

The result of the election is not all that connected to the EU. And we don’t expect it to have much predictive value for the election in May given size of Spain in the eurozone.

However, it could have some currency implications. Here’s a rundown of the Spanish general election and what it could mean for currency traders.

Wait, Didn’t Spain Just Have an Election?

The last general election in Spain was in 2016, which resulted in a hung parliament. After an extended period of negotiations, the Partido Popular (PP) managed to cobble together a coalition of center-right parties to form a government.

However, last year, the administration was rocked by a major campaign finance and corruption scandal. The scandal led to a no-confidence vote, which the PM (Mariano Rajoy) lost.

Under Spanish parliamentary rule, should a motion of no confidence prosper, the person who brought the vote automatically becomes Prime Minister (styled, President of the Government). This led to Pedro Sanchez as the leader of the Socialist party (PSOE) forming a minority government. In the latter part of the year, his administration was unable to get a budget passed. So it finally decided to call for a general election.

So, Now What?

Calling the election now was seen as largely strategic. This is because PSOE had been leading in the polls in the run-up to the dissolution of Parliament.

That situation remains, but votes seem to be divided among four major parties. And none of the parties would have enough to form a government outright. This would lead to a repeat of the situation after the last election, with an extended negotiation period to form a coalition administration.

The leading legislative and governmental body in Spain is the lower house, the Congress of Deputies. These elect the President of the Government. Therefore, a prospective PM would have to get the support of at least 176 of the 350 deputies.

The Parties and Their Conflicts

The four major parties in the polls have a complicated relationship.

The PP and PSOE are the traditional right and left parties whose leaders have held power since the country returned to democracy. However, alternative parties have been making inroads due to general dissatisfaction with the dual political party system.

Those include the Ciudadanos, a right-liberal party, championing free markets and trade. These are generally friendly with the PP. The other is the conglomerate of populist left parties under the aegis of Podemos (Unidas Podemos on the current ballot). Podemos has a certain amount of convergence with the PSOE (although they accuse the traditional socialist party of being too friendly to the right).

The problem is that no two parties have enough votes to form a government. And they each have serious objections to either of the others.

So far, polling has shown PSOE in the lead position with just under 30%. The PP follow with around 20%, then come the Ciudadanos with around 15%, and finally Podemos with around 12%. This would imply that Pedro Sanchez, the leader of PSOE would have the first crack at trying to form a government.

The spoiler in the election this time around is the Andalucian-centric, populist right-wing party, Vox. This has been polling a little over 10%. Because of these dynamics, most analysts are projecting another hung parliament, with potential for another round of protracted negotiations.

These negotiations could spill over into the EU election. And the uncertainty associated with that would put a further damper on euro risk sentiment during the process.

By Orbex

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