2023-07-24 15:28:43
The results that the polls have produced do not point to a clear majority, the negotiations can be arduous and end in an electoral repetition, although the Prime Minister, Pedro Sánchez, assures that a formula for governability will be found. None of the blocks has, a priori, a sufficient majority in clear seats and this could lead to an Executive in office for the coming months due to the arduous negotiations and even a repetition of the elections. The Spaniards supported the Popular Party to electoral victory with 136 seats and 33% of the votes, but this support does not guarantee that it can form a government. Vox, one of the main parties on which the PP could rely, lost votes compared to the last elections and obtained 33 seats. Both formations are far from the majority (set at 176 seats) given the difficulty of including nationalist forces in a hypothetical investiture pact. In the block on the left, the majority is not clear either. The PSOE won 122 seats, but that does not guarantee it can form a new executive either, and it will have to seek the support of Sumar, which wins 33 seats, and forces such as ERC, Junts or the BNG.
Given this scenario, the feeling in the economic world is one of uncertainty. The lack of political stability is the worst possible scenario for economic agents. With an Executive without stability in parliament to legislate, both companies, investors and savers have to carefully consider their movements in the absence of a clear agenda for the coming months. When a situation of this type takes place, investments are postponed because investors want to know who is going to be their interlocutor in the public administration, the public accounts of previous years must be extended and the most delicate economic reforms, such as pensions or the reduction of the public deficit, cannot be carried out by an executive in office that has very limited legislative capacity.
It is common to remember the case of Belgium, which went on to accumulate 493 days without an Executive after the elections were held in May 2019. The country even managed to improve some of its economic indicators despite the legislative stoppage. Despite this example, for the political scientist from the Universidad Pontificia Comillas Javier Martín Merchán it is a scenario that, in the case of Spain, would not be something positive. “It is very likely that investments will be postponed and that will slow down job creation. Market confidence suffers due to the lack of stability and we must take into account how important it is for Spain at this time the purchase of debt by investors“, says Martín Merchán.
One of the main consequences that a political blockade usually entails is the extension of the General State Budget. The current accounts are valid until December 31. “The Government is currently in office, so its legislative work is limited. It only has the capacity to maintain current expenses. In the event that new budgets cannot be drawn up, the current ones would have to be extended on January 1, 2024,” says Diego López Garrido, vice president of Fundación Alternativas and professor of Constitutional Law at the University of Castilla-La Mancha. Current spending already committed will continue to work, but the extension prevents spending that could generate economic growth.
This scenario has already occurred in the past. The public accounts for the year 2018, prepared by the PP minister Cristóbal Montoro, were extended for two consecutive years. The Government of Pedro Sánchez of the PSOE did not obtain support in 2019 to approve the public accounts and they were extended to 2020 for the fourth time. On that occasion, The autonomous communities have already begun to warn that they would suffer liquidity and treasury problems in 2020since they were receiving income much lower than what would correspond to them due to the improvement in the economic situation and the increase in tax collection in 2019.
For Luis Martín, partners at the Abencys law firm and economists, the worst of a possible blockade of the Cortes Generales would be the postponement of structural reforms. “At this time it is very necessary to advance in the reform of pensions, of regional financing, to begin to reduce the public deficit…and for all that, political stability is necessary”, points out Martín. Political scientist Martín Merchán recalls that in 2015 and 2016, when there were repeated elections, numerous reforms were postponed due to the lack of political stability to carry them out. “And, furthermore, all concessions of public tenders would be paralyzed. In the case of construction companies, this would have a direct impact on their sales,” he points out. He also points out that the image of Spain at the international level would be affected. “The opportunity cost of not having a government is difficult to quantify, but political and economic instability is a drag on foreign investment”, explains this specialist.
Regulatory bodies and public companies
A political blockade would also hinder the renewal of management positions in the main regulatory bodies, such as the National Stock Market Commission. “The markets always seek stability and will be more favorable to a government that attracts foreign investment, key for the selective. The listed companies that could suffer the most from political uncertainty are those in which the Executive has a hand, such as Indra, Iberdrola or Endesa, “explains Diego Morín, an analyst at IG Mercados. Indra and Endesa are left close to 3% in the stock market session on Monday and are the selective values that fall the most together with the six banks listed on the Ibex 35, which are all negative.
Fixed income and the stock market would be the first to be affected by the lack of government. “Business expectations would be the first to be affected by uncertainty,” says Javier Martín Merchán, from the Universidad Pontificia Comillas.
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