Spain elects first hung parliament

A Spanish election has produced the first inconclusive result since the advent of democracy 40 years ago.

15-12-23-Rajoy-634

Mariano Rajoy: glum about the leftists

A Spanish election has produced the first inconclusive result since the advent of democracy 40 years ago. The ruling centre-right People's Party (PP), led by Prime Minister Mariano Rajoy, finished first but lost its overall majority, while the Socialists came second.

The populist-left, anti-austerity Podemos party came third, doing better than anticipated, while the centrist, economically liberal Citizens' group, Ciudadanos, did worse than predicted, finishing fourth. If it proves impossible to cobble together a government from this perfectly hung parliament, new elections may be held in the New Year. The Spanish stockmarket slid by almost 3% on the news.

What the commentators said

The result also reflects "austerity fatigue and the country as a whole has clearly shifted to the left", according to sovereign bond strategist Nicholas Spiro. "We can certainly forget about reform." This is a great pity, said The Wall Street Journal, because Spain's economy has been greatly helped in the past few years not only by restrained public spending, but also by tax cuts and labour market reforms. These pro-growth measures help explain why Spain's GDP is set to expand by 3% in 2015.

But there's more to do on this front, especially when it comes to liberalising the labour market, and some tax cuts aren't supposed to kick in until next year. So the danger now is that reform momentum will slow sharply and dent growth, said The Wall Street Journal. If this happens, "it would reinforce the basic belief that enacting tough but necessary reforms is the kiss of death in the eurozone". This has hampered crucial reforms in France, Greece and Italy.

An election like this would have terrified markets a few years ago, but this time "the numbing effect" of the European central bank's quantitative easing (QE) programme has kept investors relatively calm, said the FT's Elaine Moore.

A sell-off of Spanish debt, driving bond yields and hence long-term interest rates to bankrupting highs, is impossible now that the ECB is hoovering up bonds.The ECB has pre-empted a messy break-up of the eurozone. But there could now be a "corrosive showdown" with Germany over fiscal austerity, which is also facing serious resistance from leftists in Italy, Greece and Portugal, as Ambrose Evans-Pritchard pointed out in The Daily Telegraph. Europe's political fragmentation continues apace, which bodes ill for the single currency's long-term future.

Recommended

UK inflation slides to 8.7% - what does it mean for your money?
Economy

UK inflation slides to 8.7% - what does it mean for your money?

Inflation has dropped below 10% for the first time in months, but with food prices at a 45-year high, is this good news and what does it mean for your…
24 May 2023
Why the UK equity market is shrinking
Economy

Why the UK equity market is shrinking

The crisis has been building for 25 years, says Max King, and it will take decades to reverse the trend.
18 May 2023
How inflation is hitting you in the pocket
Economy

How inflation is hitting you in the pocket

Our money has been debased for decades. The blame lies with the advent of fiat money, says Dominic Frisby.
11 May 2023
NIESR: ‘Squeezed’ middle class households now £2,560 a year worse off
Economy

NIESR: ‘Squeezed’ middle class households now £2,560 a year worse off

Britain will feel like it’s in recession even if it isn't after a significant drop in middle-class income - and the poorest households are even worse …
11 May 2023

Most Popular

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?
Savings

June’s NS&I Premium Bond prize draw - are you this month’s millionaire?

Two fortunate NS&I Premium Bond winners are now millionaires. Find out here if you’re one of them.
1 Jun 2023
The best one-year fixed savings accounts - June 2023
Savings

The best one-year fixed savings accounts - June 2023

You can now earn 5% on 1 year fixed savings accounts - the best rate seen in 14 years. We have all the latest rates available now.
2 Jun 2023
The top healthcare funds to buy
Investments

The top healthcare funds to buy

Increasingly rapid progress in drugs and healthcare technology makes these trusts top tips, says Max King.
1 Jun 2023