by If Pedro Sanchez loses tomorrow's confidence vote, and if political parties fail to form a new government over the next two months, new general elections would be called. Risks to the recovery may surface if political uncertainties remain entrenched. Yesterday, Pedro Sanchez, the PSOE leader, lost the first investiture vote. A second vote will take place on Friday, 4 March. The threshold will be less demanding as only a simple majority is needed. Even so, Sanchez’s chances of winning the second confidence vote are very low. Given the wide divergences between parties, a new election in late June seems the most likely scenario. A fragmented parliament As a reminder, December’s general election produced a highly fragmented Congress, confirming the end of the PP-PSOE political duopoly at national level. The ruling conservative party (PP) won the election with a 28.7% share of the votes. Nevertheless, it saw the number of its seats fall to 123, well below the 176 minimum required for an absolute majority. The Socialist PSOE came in second with 90 seats (22.0%), its worst result ever. The far-left party Podemos (20.6%) finished third with a total of 42 seats, or as many as 69 if we count the party’s regional brands in Catalonia, Valencia, Galicia and the Basque Country. The Ciudadanos party (13.9%) came in fourth with 40 seats.
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If Pedro Sanchez loses tomorrow's confidence vote, and if political parties fail to form a new government over the next two months, new general elections would be called. Risks to the recovery may surface if political uncertainties remain entrenched.
Yesterday, Pedro Sanchez, the PSOE leader, lost the first investiture vote. A second vote will take place on Friday, 4 March. The threshold will be less demanding as only a simple majority is needed. Even so, Sanchez’s chances of winning the second confidence vote are very low. Given the wide divergences between parties, a new election in late June seems the most likely scenario.
A fragmented parliament
As a reminder, December’s general election produced a highly fragmented Congress, confirming the end of the PP-PSOE political duopoly at national level. The ruling conservative party (PP) won the election with a 28.7% share of the votes. Nevertheless, it saw the number of its seats fall to 123, well below the 176 minimum required for an absolute majority. The Socialist PSOE came in second with 90 seats (22.0%), its worst result ever. The far-left party Podemos (20.6%) finished third with a total of 42 seats, or as many as 69 if we count the party’s regional brands in Catalonia, Valencia, Galicia and the Basque Country. The Ciudadanos party (13.9%) came in fourth with 40 seats. Among the smaller parties, Izquierda Unida won two seats.
As for the regional parties, the Catalan Republican Left (ERC) managed to obtain nine seats, while Democracia i Llibertat, the new brand led by Catalan premier Artur Mas, secured eight seats. Meanwhile, the Basque Nationalist party (PNV) garnered six seats while the radical left party Bildu obtained two. The Canarian coalition (CC) won one seat.
Pedro Sanchez loses first investiture vote
The procedure for appointing the prime minister is enshrined in Article 99 of the 1978 Constitution. After consulting with the party leaders in Congress, the King of Spain, Felipe VI, proposed a candidate to head the Spanish government. Mariano Rajoy, the PP leader, declined the King’s invitation to form a government after admitting that he lacks support.
As a consequence, the King proposed Pedro Sanchez, the PSOE leader. To become PM, the candidate needs to win the confidence vote in Congress. The first confidence vote requires an absolute majority (at least 176 votes of the total of 350).
After two days of intense debate, Sanchez lost the first investiture vote. Out of a total of 350 seats, he could count on just 90 from his own group and 40 from Cuidadanos, with whom the PSOE signed an agreement last week paving the way for yesterday's bid to form a minority government. There were 219 votes against and one abstention.
What's next?
A second vote will take place on Friday, 4 March, but with a lower threshold (i.e. a simple majority will suffice). If Pedro Sanchez fails to secure that simple majority, another two-month period will begin, during which the parties can seek a new agreement to form a government. However, if no PM is elected within two months of the first confidence vote, parliament would be dissolved and new general elections would be called – most likely in late June 2016, probably the 26th, three days after the Brexit referendum.
At this stage, Sanchez’s chances of winning the second confidence vote are very slim. He cannot become PM if both Podemos and PP vote against him as they have 185 seats in total. An abstention by the PP and Podemos seem very unlikely.
A new round of consultations will therefore start among parties after the second confidence vote. It is not impossible that a temporary solution will be found after a new round of consultations. Nevertheless, the chances of reaching such an agreement are low as the divergences among the parties are still wide.
As a result, an election in late June appears the most likely scenario. However, new elections would not be a solution. Based on recent opinion polls, the parliament would remain fragmented. A change in the party’s leadership would increase the likelihood of forming a government. At this stage, though, that appears unlikely.
Consequences for the outlook in Spain
For 2015 as a whole, the Spanish economy grew by 3.4%, marking a strong acceleration from the 1.4% posted in 2014, and its fastest annual growth rate since 2007.
However, if political uncertainties remain entrenched, consumption and investment might be dented, posing some risk to the recovery and thus to our forecast of a Spanish GDP growth of 2.7% for 2016 as a whole. By way of an example, Portugal, which experienced a period of political instability after September’s elections, saw investment collapse in the second half of the year, partly reflecting political risks. At this stage, we see no signs of that. The Spanish economy is likely to continue to materially outperform the euro area average in 2016 as well.
Furthermore, this could create some financial stress, but supportive economic conditions in the region and a more favourable financial and institutional backdrop will prevent financial tensions from spiralling into a more severe, systemic-like episode of stress.