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Spain: Local elections signal shift in Spain's political landscape

June 2, 2015

The results of regional and local elections on 24 May confirmed the beginning of a significant change in Spain’s political landscape. Traditionally dominant parties—the ruling People’s Party (Partido Popular, PP) and the opposition Spanish Socialist Workers’ Party (Partido Socialista Obrero Español, PSOE), lost a large share of the vote to newcomers Podemos (translated in English as "We can") and Citizens (Ciudadanos), who have now solidified their place in Spanish politics. Anti-austerity Podemos and the relatively pro-market Citizens were able to attract voters who were frustrated with the government’s economic policies of austerity and corruption scandals. PP and PSOE have governed Spain for more than 30 years and political fragmentation has led the country into unchartered waters.

Results from the vote show that, although PP still received the largest share of votes, it did lose significant ground, winning approximately 27% of votes, down from around 38% in 2011. Further, although PP won in nine regions, it failed to reach an absolute majority in any of them. Similarly, PSOE preformed worse than in the 2011 municipal elections despite coming in second with approximately 25% of the vote. On the other hand, Citizens came in third, winning around 7% of the vote, which results in around 75 regional deputies throughout twelve different regions, significantly up from the nine positions it previously held in only Catalonia. Although Podemos did not directly enter a list in the municipal elections and instead chose to support local organizations, they won 119 regional deputies across the country.

Overall, the local and regional elections signaled a change from the traditional two-party dominant system of governance to greater political fragmentation. Coalition negotiations will be held in the local and regional governments in the upcoming weeks and coalition governments run the risk of greater instability. Moreover, these elections served as a test of the mood of voters ahead of the upcoming general elections. The results point to the possibility of a fragmented parliament and fragile government. In addition, the outcome illustrates a potential shift in support from the right-side of the political spectrum to the left as the center-right PP loses support. Nina Delhomme, Economist from Credit Agricole S.A. adds:

“Different coalitions are possible. Some common grounds do exist between Ciudadanos, Podemos and PSOE, making possible a Ciudadanos or PSOE-led coalition with Podemos in minority, based on a reformist agenda (in minority Podemos will likely tone down further). But the most worrying situation for investors and markets would be a Podemos-led coalition. It would probably have a negative impact on public finances, given Podemos willingness to increase public investment, public employment and pensions. However, the rebound in the economy is now largely self-sustained, there is no urgent need for additional austerity measures, and major structural reforms have been implemented: consequences must therefore be relativized. Clearly, some fiscal slippage will induce larger fiscal deficits than currently scheduled, and a lower path in public debt reduction. But we can expect welfare spending supporting poorest households (i.e. with the largest propensity to consume) to partly compensate for lower structural efforts by generating more consumption and consequently more economic growth.”

Looking forward, despite increased uncertainty related to the upcoming general elections Spain’s prospects are bright. The economy picked up pace in the first quarter of 2015 and has become one of the fastest growing major economies in the Eurozone. In addition, even with the prospect of coalitions involving anti-austerity parties, the FocusEconomics Consensus Forecast panel sees the fiscal balance improving from 2014’s 5.8% deficit to a 4.5% deficit in 2015. For 2016, the panel sees the deficit easing further to 3.4%.


Author: Angela Bouzanis, Senior Economist

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