Is Spain about to become the next Italy?

By Ferdinando Giugliano / BLOOMBERG

Anti-establishment parties have made real inroads in southern Europe in recent years, taking power in Italy and Greece after vowing to jettison mainstream political thinking and challenge the economic consensus in Brussels. As Spain goes to the polls this month, many are worried about the rise of Vox, an anti-immigrant, anti-feminist movement that has emerged as a genuine electoral force.

For those troubled by Europe’s turn toward populism, though, Madrid is a long way from going down the path of Rome, let alone Budapest or Warsaw.

Mainstream parties remain solidly in the lead, meaning the next government probably won’t be too different from what has come before. Even though this is the third national election in four years, the Spanish economy has withstood the instability.

None of this is to downplay the fears about Vox, whose arrival on the scene has so enthused Steve Bannon — the former US President Donald Trump advisor and nationalist rabblerouser.

In December, it became the first far-right party to win seats in a regional Spanish election (Andalusia) since the death of the military dictator Francisco Franco. Its votes were decisive in putting into power a coalition of the centre-right People’s Party and the centrist Ciudadanos, ending the Socialists’ 36 years of rule in Andalusia.

Vox is on course to win about 10% of the votes in the general election. That’s pretty remarkable for an organisation only founded in late 2013.

Vox is, of course, not the only anti-establishment party winning votes in Spain. Podemos, the extreme left party led by Pablo Iglesias, is faring much worse than in 2015, when it came close to beating the Socialists in a national election. But polls still give it about 12%-13% of the vote, which might make it a player in the post-election coalition building.

Regional parties are strong too, including the pro-independence Republican Left of Catalonia. As Antonio Barroso, a researcher at consulting firm Teneo noted, there are lots of undecided voters, perhaps as many as four in 10. But the big theme of this election is the fragmentation of the electorate. The two parties that have dominated Spanish politics for the past four decades, the Socialists and the People’s Party, are struggling to win more than half the total votes between them. So, will Madrid be pulled to the extremes, as Bannon hopes?

Fortunately for the more moderate- minded, it looks unlikely. There are three possible outcomes to this election, and none appears particularly alarming. The first would see the ruling Socialist Party, riding high in the polls at about 30%, forming a left of-centre coalition with the support of Podemos and some regional parties.

Alternatively, Pedro Sanchez, the party’s chief, might turn toward the centre and try to form an alliance with Ciudadanos, even though its leader Albert Rivera has ruled this out.

Should Sanchez manage to cobble together either of these partnerships (far from a given), there’s not much for the European Union (EU) or investors to worry about. As prime minister (PM), he has followed a classic leftwing agenda, proposing tax hikes on the rich and the banks to fund benefit spending. Nadia Calvino, the economy minister, is a former senior EU official and is unlikely to want to upset Brussels if she stays in office.

Even in partnership with Podemos, Spain would probably behave like Portugal, where Antonio Costa’s left wing government has cut the budget deficit by prioritising social spending over areas such as infrastructure.

The second electoral possibility is a right-wing government formed by the People’s Party and Ciudadanos with the support of Vox, as in Andalusia.

This is hard to imagine given the Socialists’ poll lead and the squeamishness within Rivera’s centrist party about his shift to the right. Still, a centre-right coalition wouldn’t be a disaster for the economy. It would almost certainly pursue lower taxes, funded via reduced spending. That’s hardly the same as Italy’s right-wing League, which wants a “flat tax” but is unwilling to make cuts to pay for it.

The third potential outcome is that the political fragmentation is too great to allow the creation of a government.

In that case, Spain would go back to the polls, perhaps as soon as the Autumn. Obviously, it would be far better for the mainstream candidates to compromise on a programme to support the country’s recovery, which has slowed but remains robust. Yet, even if they don’t, the economy has proven itself resilient to the absence of strong government.

Investors seem sanguine. The yield on Spain’s 10-year bonds is only slightly more than a percentage point higher than the German equivalent, and well below Italy’s. After all the drama that’s gripped Southern Europe in this decade, including the Catalan crisis, Spain still looks relatively unexciting. And that’s meant as a compliment. — Bloomberg


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.