The Spanish Elections that the EUR Has Ignored

With Brexit, corporate earnings, dovish central banks and a bouncing Greenback in the mix, the Spanish elections seem to have been largely ignored by the EUR and the broader market.

Spain votes on Sunday and, when considering the fact that it’s the 3^rd general election in 4-years, there should be some concern over the political landscape of the EU’s 5^th largest economy.

Prime Minister Sanchez called the snap general election in February. Spain’s right wing and Catalan parties rejected Prime Minister Sanchez’s budget, leading to yet another election.

It’s been a tumultuous time in Spanish politics. The current ruling Spanish Socialist Worker’s party (“SPOE”) took office by way of a vote of no confidence last year. Corruption claims led to Rajoy and the People’s Party losing office.

In spite of the vote of no confidence and the PSOE’s victory, a minority government has left Spain in a state of flux.

With the lack of a majority, it was only a matter of time before the PSOE called it a day. Dependent upon smaller parties that supported a PSOE minority government, even the PSOE have failed to turn Spanish politics around.

Fragmentation is a key issue, with the country heavily divided. Unsurprisingly, the biggest issue raised by voters is unemployment. With no single party having been able to deliver economic prosperity, the number of main parties has risen from just 2 to 5.

The anti-austerity Podemos had caused a scare back in the summer of last year. Now there is the Citizens party and the Vox party to also consider. The two cover center-right to far-right. While some consider far-right parties to have little chance of office, the Vox party are looking good for more than a handful of seats.

It wasn’t long ago that the Alternative for Germany party caused a stir.

Who’s in the Running

According to the El Pais latest opinion polls, the ruling PSOE will win 28.8% of the vote. That’s equivalent to 129 seats.

The ousted People’s Party is in for 17.8% of the vote (75 seats) and 14.1% (49 seats) for the Ciudadanos.

Looking towards the right, Vox is expected to win 12.5% (32 seats). The anti-austerity Podemos look is set to win 13.2% of the vote (33 seats).

Just under 50% of the electorate is undecided on which party to vote for, according to the latest polls…

Looking Ahead

Perhaps the real reason for the EUR and the broader markets to largely ignore the election is because of the fact that there’s unlikely to be a shock far-right victory.

As we have seen in recent years, shock results are not uncommon, however, and are worth considering. The number of electorates yet to decide should at least raise a red flag…

If all goes according to plan, the PSOE will form some alliance with the Podemos and one of the smaller parties that are not in the running.

One issue that is hot and did not make the top of the list of voter issues is Catalonia. That should leave Rajoy out of the running. If there is a shock return to office, things could get a little hot under the collar. Not just for Spain but also the EUR.

Official results are announced on Monday, 13^th May. Exit polls will likely give the markets something to chew through the 1st week.