Spain: At the political crossroads - RBC CM

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 25, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at RBC Capital Markets, suggests that in Spain, cross-party talks have continued relentlessly since the inconclusive December elections.

    Key Quotes

    “The left-leaning PSOE party (which came second to the PP in the December vote) has been given the mantle to try and form a government, after incumbent PM Rajoy passed on the opportunity last month.

    It appears that the PSOE leader Sanchez’s discussions with the centre-right party Ciudadanos
    have been fruitful. Ciudadanos’s leader, Rivera, spoke in a radio interview yesterday, suggesting there may be a formal deal with the PSOE emerging in the coming days. Meanwhile, more decisive talks between the PSOE and Podemos (the left leaning newcomers) also re-started on Monday, after a public spat between the two parties (though the latter on paper still remains opposed to the idea of a coalition that also includes Ciudadanos – also see overnight news).

    Sanchez is due to face a first investiture vote in Parliament on 2 March. He needs an absolute majority here to get his government approved. Failing that, a second vote will be held 48 hours later, where he needs a simple majority (i.e. more ‘yes’ votes than ‘no’votes). If that fails, the process goes back to square one, and the various parties have another two months to try and form a government, otherwise new elections will be called. With explicit vote from both Podemos and Ciudadanos, PSOE’s Sanchez would in theory have enough votes to get through in the first round; altogether, the three parties command 199 of 350 seats in the Congress of Deputies. This would in turn avoid a new round of elections in the summer.

    From a market perspective, avoiding new elections should generally be seen as ‘a good thing’ but a negative reaction might still stem from the perception that:

    • At best, a broad coalition would likely be very fractious, with junior partners Ciudadanos and Podemos at clear loggerheads on key policy issues (such as allowing a Catalonia independence vote). This might in turn raise serious questions about the longevity of any broad alliance once it is in place.

    • At worst, Ciudadanos’s centrist position might be perceived to be undermined by a PSOE/Podemos’ leftist agenda. While the ‘leftist agenda’ has in our view been somewhat overstated (not least as the PSOE itself should exert a moderating influence on Podemos’s demands), there is a clear risk that key structural reforms instituted by the PP government since the crisis are at least partially reversed.

    Uncertainty, in other words, is likely to prevail, regardless of how the Parliamentary vote due next month plays out.”
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