While Prime Minister Pedro Sánchez assures that a formula for manageability will be found, the results of the polls do not indicate a clear majority, negotiations can be difficult and result in a re-election. None of the blocs a priori has a sufficient majority in the open seats, and this could result in an Executive being in office in the coming months due to difficult negotiations and even re-elections. The Spaniards supported the People’s Party with 136 seats and 33% of the vote until its election victory, but this support does not guarantee that it will be able to form a government. Vox, one of the main parties the PP can count on, lost votes compared to the last election, gaining 33 seats. Both formations are far from a majority (176 seats) given the difficulty of involving nationalist forces in a hypothetical impeachment pact.. In the block on the left, the majority is not clear. The PSOE won 122 seats, but that doesn’t guarantee it will be able to install a new ruler, and with Sumar winning 33 seats, it will have to seek the support of forces like the ERC, Junts or BNG.
Given this scenario, the feeling in the economic world is one of uncertainty. Lack of political stability is the worst possible scenario for economic agents. With an unstable Executive in Parliament to make laws, companies, investors and savers alike have to carefully consider their moves in the absence of a clear agenda for the coming months. When such a situation arises, investments are delayed because investors want to know who their public administration counterparts will be, the most sensitive economic reforms such as expanding the public accounts of past years and reducing pensions or the public deficit are required. It cannot be run by an executive body with very limited legislative capacity..
You will remember the example of Belgium, which remained without Executive for 493 days after the elections held in May 2019. The country has even managed to improve some of its economic indicators despite the legislative cut. Despite this example, for Javier Martín Merchán, a political scientist at the Universidad Pontificia Comillas, this is a scenario that would not be positive in the Spanish case. “It is very likely that investments will be delayed and slow job creation. Market confidence is undermined by the lack of stability and we must take into account how important the borrowing by investors is for Spain at the moment.‘, says Martín Merchan.
One of the main consequences of a political blockade is the expansion of the General Government Budget. Current accounts are valid until 31 December. “Legislative work is limited as the government is currently in office.. It is only capable of meeting current expenses. Existing budgets will need to be extended by January 1, 2024 if new budgets cannot be prepared, said Diego López Garrido, vice-president of the Fundación Alternativas and professor of Constitutional Law at the University of Castilla-La Mancha. Existing expenditures already committed will continue to work, but the extension hinders spending that could drive economic growth.
This scenario has already happened in the past. The public accounts for 2018, prepared by PP minister Cristóbal Montoro, have been extended for two consecutive years. The Government of Pedro Sánchez from PSOE did not receive support to approve public accounts in 2019 and has been extended for the fourth time to 2020. On this occasion, Autonomous communities have already begun to warn that they will face liquidity and treasury problems in 2020.Because they earned far less than their equivalent in 2019 due to the improvement in the economic situation and the increase in tax collection.
According to Luis Martín, economists and associates at the Abencys law firm, the worst of a possible blockade of the Cortes Generales would be to delay structural reforms. “At this time, progress in pensions and regional finance reform is essential to start closing the public deficit.…and all this requires political stability,” Martín notes. In the case of construction companies, this directly affects their sales.” “The opportunity cost of not having a government is difficult to quantify, but political and economic instability hinders foreign investment,” explains this expert.
Regulatory agencies and public companies
A political blockade would also prevent the renewal of management positions in key regulatory bodies such as the National Exchange Commission. “Markets always seek stability and will be more conducive to a government that attracts foreign investment;. The listed companies most likely to suffer from political uncertainty are those in the Manager’s hand, such as Indra, Iberdrola or Endesa,” explains Diego Morín, analyst at IG Mercados. Indra and Endesa remained close to 3% in Monday’s stock market session, with selective values falling the most, with six banks listed on Ibex 35, all negative.
The first to be affected by the absence of government will be fixed income and the stock market.. “The first to be affected by uncertainty will be job prospects,” says Javier Martín Merchán of Comillas Pontifical University.
Source: Informacion
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