Spain elects first hung parliament

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.

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.

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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.