This Week's Focus: Fears about Spain

This Week's Focus: Fears about Spain


Fears about Spain
The results of the municipal and regional elections in Spain's 24-M (May 24, 2015) show a disturbing picture for the Spanish economy for future general elections and the government arising from them before end of year .

According to the results of the vote (with 99.5%) published by the Ministry of the Interior (, four parties-PP and C's on the right and PSOE and we snapped up by the left-two thirds to three-quarters of the seats in a general election if they vote in the same sense as in the recent municipal elections.

Is the bipartisanship over?
If we consider the percentage of voting and election results extend to a national parliament level, we conclude that there is going to be, unless there is a significant shift in public opinion, a majority government. Surveys of voting intentions, validated by the screening since the percentages of votes obtained approximate the projected support this fragmentation.

The need for pacts
The necessary agreements between parties do not seem very clear, due to the considerable differences in its program and goals. Thus, for example PP and C's, who share electorate, have large differences in economic matters, at least on paper.

Remember that Spain is in a difficult financial situation, sweetened by the expansionary monetary policy of the ECB, which lets you finance a historically low interest rate despite having a debt of 100% of GDP and a deficit of 4.2% in 2015. This, in practice, it leaves little room for major changes in economic policy.

It is worth remembering that many of the changes in the political map have originated Estate recent economic, crisis that began in 2008, and has particularly affected the salaried middle class. However, public spending can not possibly grow without public revenues, ie taxes, increase significantly.

Looking right ...
Looking to the ideology of the right wing parties, both PP and C's proposed lower tax rates, including VAT, but in the case of C's turning to the topic of increasing revenue by increasing the tax burden on "the haves ". It does not seem very attractive for entrepreneurs, if this is the future partner of a PP lower.

The PP, for now, in this legislature has been increased both VAT and income tax, either by increasing the bases in the sections on the income tax as changes in classification of goods and services in the case VAT, plus a tax increase both the normal and the reduced VAT. The reforms implemented in the workplace, they also are in line to improve social conditions, but have encouraged increased unemployment now low wages, yes, improving competitiveness but with a very high social cost.

And left ...
A possible leftist government would have little capacity to support public spending with improvement of social conditions, in an environment of low growth in employment and wages and youth unemployment and over 40 difficult to solve with Current structure of the Spanish economy, based on low value-added services such as tourism.

The PSOE, in their lowest in some traditional strongholds hours, no signs of solvency in economic matters, as it accumulates, like PP, misuse of public funds in the courts that challenge their management efficiency. It also weighs debt bequeathed a bad attempt to right the economic course of the country in the end of the last stage of the national government.

The axes of economic policy proposed we can go through, inter alia, increasing taxes on wealth and inheritance, nationalization of some essential services and minimum income guarantee. Anything that appeals to private capital, which should be the engine of job creation and investment.

I want and I can not
Viewed from outside, the wishes of increase in social spending and a better redistribution of income and wealth are desirable objectives. However, reality can not be ignored. Thus, according to the Tax Agency in Spain 40% of public spending in 2013 (more than 464 billion euros) pensions and social benefits, 14% to health and education 9% was spent. Therefore, 63% of current expenditure goes to these purposes and, without considering whether or not enough.

Also keep in mind that the burden of public debt will continue to increase until 2017, not so much for the interest rate (downwards thanks to the ECB now understood why), but by increasing the base interest-bearing debt. It will increase from 34,200 million to 40,000 million in 2017, according to the Ministry of Finance.

Is Spain the next Greece?
There is concern in the markets about the direction you can make a Spain with a fragile government and mortgaged for expensive pacts necessary. The precedents of Italy and Greece did not help imagine what could happen later this year if the outcome of a general election gives a parliament fragmented with 4 or 5 parties condemned to understand to form a government or a minority government unstable.

In Italy it took a paralysis that led the EU to propose a government of technicians (remember Mario Monti?) And something similar happened in Greece, also beset by a costly rescue and postponement of economic reforms that have brought the country to financial situation limit.

Spain, although the data show some recovery, still with high debt, a persistent budget deficit, a structural problem in the economy based on goods and services of low added value, an unfavorable demographics and high unemployment. By contrast, it maintains high social spending on a comparable basis, which implies a huge budgetary effort, in a context of limited scope for tax increases.

Too much social discontent can generate a parliament "Italian style", with difficulty of forming a stable government to carry out ambitious reforms long postponed by the tight electoral calendar. And we have not talked about the great pending reform of pensions.