Will Iberian populists sink the euro?

Elections in Portugal and Spain later this year could throw the future of the euro once more into doubt.

With elections in Portugal and Spain coming up in the second half of 2015, anti-establishment, anti-austerity parties are set to do well. In Spain, a leftist populist group called Podemos (We Can) founded less than a year ago is leading in the polls.

It's easy to see why. The eurozone is stagnating. Any boost to the economy from quantitative easing could prove too little too late, and troubled states are not allowed to borrow to boost growth.

There is little appetite for structural reforms, which tend to cause pain in the short term. Unless a depression is followed by a "substantial and sustained recovery", says Wolfgang Munchau in the FT, "political systems convulse". Spain seems stronger than Greece, but its GDP is still a tenth smaller than in 2007.

Back then, the employment rate was66%; now it's 56%. In other words, 10%of the labour market has just fallen away as people have given up looking forwork. That's a depression, even if it wasn't as bad as Greece's.

"With existing policies, Spain and Greece have no chance of reverting to normal levels of economic activity in a generation," says Munchau. Like Greece, Spain will have to restructure some of its debt, and only Podemos offers a debt restructuring policy. So Spain may well clash withthe EU establishment this year.

Italy could also decide to leave if itcan't reach a deal to lighten its debt load within the euro. Three out of four of the main parties are turning against euro membership. The political risks to the euro, concludes The Economist, have never looked so great.

Recommended

How the Covid-19 vaccine crisis is putting the EU in danger
EU Economy

How the Covid-19 vaccine crisis is putting the EU in danger

The botched coronavirus vaccine campaign will cause long-term harm to the EU's economy, says Matthew Lynn.
4 Apr 2021
How the vaccine wars will harm us all
Global Economy

How the vaccine wars will harm us all

Grabbing and hoarding vaccine supplies, or even manufacturing one’s own, might seem to make sense for a state in an emergency. But the damage done to …
27 Mar 2021
The European Central Bank fumbles its way towards yield curve control
EU Economy

The European Central Bank fumbles its way towards yield curve control

The EU’s economic recovery is faltering, but its bond yields keep rising. That makes things tricky for the European Central Bank, says John Stepek. He…
12 Mar 2021
Vexing vaccine delays hit drug firms
Biotech stocks

Vexing vaccine delays hit drug firms

AstraZeneca and Pfizer are being attacked by the EU over what it claims are delays in delivering the Covid vaccine.
28 Jan 2021

Most Popular

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?
Bitcoin

“Joke” cryptocurrency dogecoin goes to the moon. What’s going on?

Dogecoin – a cryptocurrency created as a joke – has risen by more than 9,000% this year alone. Saloni Sardana looks at how something that began as an …
19 Apr 2021
The FTSE 100 has clawed back above 7,000 – how much higher can it go?
UK stockmarkets

The FTSE 100 has clawed back above 7,000 – how much higher can it go?

The FTSE 100 index has risen to over 7,000 for the first time in over a year – it now sits just above where it was in 1999. But its era of neglect cou…
19 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021