With anti-austerity party Podemos winning 69 seats in the Spanish election, should markets be scared?
Chris Bailey is European strategist at Raymond James, says Yes
The Eurozone is ending 2015 the way it began – with a political earthquake. Back in January, Greece’s radical anti-austerity party Syriza was making headlines. Today it is Spain’s Podemos. Formed just a few years ago, it is now the third largest political force in Spain. More importantly, by taking votes away from the established political powers, Podemos ensured that the only mathematically viable two-party government was a grand coalition between the Popular Party and the Socialists – traditionally intense rivals. At a time of 20 per cent unemployment and a still fledgling economic recovery, Spain has voted for weak government. Yesterday’s falls in the Spanish equity market and sovereign bond prices reflect the traditional hatred of such uncertainty. And it does not end there. Failure to form a government will lead to another election in March, raising the spectre of a confidence-sapping vicious circle in the economy. Until a stable government is formed, it is hard-hat time for Spanish investors.
Ruth Lea is economic adviser at Arbuthnot Banking Group, says No
The Spanish elections herald a new multi-party era, breaking the grip of Mariano Rajoy’s Popular Party (PP) and the Socialists on Spain’s politics. Podemos and the centrist Ciudadanos both polled well. With no party having an overall majority, compromise will be needed to form a new government. This is all the more true because neither a PP-Ciudadanos coalition (163 seats), nor a Socialist-Podemos coalition (159), two possible scenarios, would have an overall majority (176). If Podemos joined the new government, and this is far from certain, it is unclear how their anti-austerity rhetoric would translate into their conditions for being in government. But with Spain recovering well and unemployment falling, albeit still very high, they are unlikely to upset the apple cart. Indeed, they would not be thanked for it. And it is, therefore, unlikely they will try to wreck Spain’s compliance with the Eurozone’s fiscal rules. Policy may change, but not radically. Markets should have little to fear.