Spain’s election shock rattles stocks

Confusion reigns following Spain's recent indecisive local elections.

"The winners were: confusion, fragmentation and unpredictability," in therecent Spanish local elections, says Tobias Buck in the Financial Times. Two populist groups, anti-austerity party Podemos and centrist party Ciudadanos, made huge gains. The ruling centre-right Popular Party (PP) delivered its worst results for 24 years.

"Spain's traditional two-party system is being blown apart," says The Guardian. The overall share of the vote for the two main parties, PP and the opposition Socialists, stood at just 52% , a 40-year low. "Spain's older parties have only themselves to blame," says The Economist. The PP has delivered an economic rebound, but also swingeing spending cuts and corruption scandals.

Anti-establishment sentiment is set to affect the general election later this year perhaps even landing the younger parties a role in a coalition government. That prospect already seems to be unsettling Spanish equities. OnMonday last week, the Ibex-35 index of leading Spanish shares fell by more than 2%.

A recurrent worry in the eurozone crisis has been the risk of populist and anti-austerity parties causing tension with European policymakers and even prompting an eventual exit from the single currency.

In the short term, the result "is likely to make it even more difficult to resolve the Greek crisis", says Marshall Gittler of IronFX. Having populists snapping at its heels will make Spain all the more reluctant to make concessions to Greece for fear of vindicating "the rebellious approach" of the Syriza coalition.

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