6 Jan 2016
Spain: No white smoke to be seen - ING
FXStreet (Delhi) – Geoffrey Minne, Economist at ING, suggests that Spanish political environment becomes more and more smoke-filled as no concrete coalition plan is in the offing and political parties are far from forming a regional government in Catalonia and a national government in Spain.
Key Quotes
“At the national level, Mariano Rajoy took the lead in the aftermath of the elections and spent most of his end-of-year “holidays” trying to secure an overall majority or a minority government. As expected, no partner was found among the three other major parties and in the coming weeks no agreement is projected unless Rajoy would step down (which remains an unlikely event for the moment).
The play then passed to the second party: the PSOE. Internal rifts have progressively appeared when talks about a coalition with Podemos and nationalist parties started to be echoed and some key members are now pushing for organising a party convention. We are not there yet but it is possible to see a new leader replacing Sanchez in the coming weeks.
In the meantime, a gridlock is expected and the spotlight is on the future cohabitation between a caretaker government that only tackles urgent matters and parliamentary groups that set its political agenda. The situation is unprecedented.
In Catalonia, time is running out and if no agreement is found before 11:59pm on Sunday night then regional elections have to be held between 19 February and 10 March.
In Catalonia, snap elections could be seen as positive by the markets knowing that the yield of the Catalonian bond maturing in 2020 jumped by 110bp after the establishment of a broad pro-independence coalition in July. The possibility of a different outcome could lower borrowing costs for the next government and improve the rating of the Catalonian government (still considered as junk by S&P).
All in all, it is difficult to imagine any outcome in the short run and knowing the current position of the key political parties, finding a stable coalition will be a hard task. We could expect a minority government led by the PSOE and supported by Ciudadanos. In any case, a referendum in Catalonia is an unlikely event and snap elections are most likely to be held in the coming months.”
Key Quotes
“At the national level, Mariano Rajoy took the lead in the aftermath of the elections and spent most of his end-of-year “holidays” trying to secure an overall majority or a minority government. As expected, no partner was found among the three other major parties and in the coming weeks no agreement is projected unless Rajoy would step down (which remains an unlikely event for the moment).
The play then passed to the second party: the PSOE. Internal rifts have progressively appeared when talks about a coalition with Podemos and nationalist parties started to be echoed and some key members are now pushing for organising a party convention. We are not there yet but it is possible to see a new leader replacing Sanchez in the coming weeks.
In the meantime, a gridlock is expected and the spotlight is on the future cohabitation between a caretaker government that only tackles urgent matters and parliamentary groups that set its political agenda. The situation is unprecedented.
In Catalonia, time is running out and if no agreement is found before 11:59pm on Sunday night then regional elections have to be held between 19 February and 10 March.
In Catalonia, snap elections could be seen as positive by the markets knowing that the yield of the Catalonian bond maturing in 2020 jumped by 110bp after the establishment of a broad pro-independence coalition in July. The possibility of a different outcome could lower borrowing costs for the next government and improve the rating of the Catalonian government (still considered as junk by S&P).
All in all, it is difficult to imagine any outcome in the short run and knowing the current position of the key political parties, finding a stable coalition will be a hard task. We could expect a minority government led by the PSOE and supported by Ciudadanos. In any case, a referendum in Catalonia is an unlikely event and snap elections are most likely to be held in the coming months.”