Spain: A Bumpy Road

Published on August 2, 2016

Key Takeaways:

Spanish political gridlock will not be broken just yet, as acting Prime Minister Mariano Rajoy’s first attempt to obtain the Spanish Parliament’s confidence in late August is likely to be defeated.

There is equally no chance for Socialist leader Pedro Sanchez to muster enough votes for an alternative coalition government led by the Socialist Party (PSOE) and involving far-left Unidos Podemos.

The most likely outcome will eventually be a PP minority government, made possible by widespread abstention (including by the PSOE), but not until later in September or early October.

August 1, 2016

A string of polls taken on Sunday indicate that 66% of Spanish citizens are calling for the Socialist Party (PSOE) to abstain and let Prime Minister Mariano Rajoy and his Partido Popular (PP) form a minority government, and finally break the country’s political impasse.

While this is the most likely eventual outcome, it will take a while, and should not be taken for granted.

*** Before the gridlock is broken, Socialist Party (PSOE) leader Pedro Sanchez needs to show some strength and reassure the party’s base, so he has decided to vote against Rajoy’s investiture this time around. ***

*** Rajoy will likely face a first Parliamentary vote between mid-August and early September, and will almost surely fail to obtain either an absolute (176 votes in the first call) or a relative (more “yes” than “no” in the following ones) majority. ***

*** The ball will then be in King Felipe VI’s court, and will only be returned to Rajoy after Pedro Sanchez tries – and fails again, as PSOE officials themselves expect already in private – with his own bid. Only at that point, when the risk of a third election becomes serious, will Sanchez be able to justify an abstention to enable the PP to govern in minority, and even then, after the initial “gracious” gesture, the PSOE will not cooperate with a Rajoy government. ***

Rajoy’s Isolation

Acting Prime Minister Mariano Rajoy, despite a very strong showing of his PP in the June 26 vote, has not made much progress so far in securing the votes he needs to pass a confidence vote in the Spanish Parliament.

Informal negotiations to form a coalition with either Ciudadanos and/or PSOE have been unsuccessful, and Rajoy has found himself in the strange position of being the most winning political leader but also the most isolated.

The acting Prime Minister has therefore been forced to punt, refusing to face a Parliament vote for fear of once again triggering the now notorious two-month deadline – set by the Spanish constitution as a fixed time to form a government after the first attempt at getting a confidence vote – that already led to a second election last June 26.

But that dithering will have to end relatively soon.

Indeed, even though the letter of the Spanish constitution does not give a specific deadline for the election’s winner to face Parliamentary scrutiny, its spirit clearly indicates there is a duty for the leader of the majority party to at some point take responsibility and face Parliament, even if with an almost certain chance of failure.

Rajoy was counting – and still is to some extent – on securing a deal before showing up in Parliament, but time is running out. And if he doesn’t manage to do so in the next two weeks, he will have to cave and brave the Parliament vote – and accept failure.

Triggering the Two-month Deadline

While a third election, we understand, is an outcome that none of the party leaders wants, the road to avoid it is twisted and full of traps.

After his relative success in the June 26 re-vote, Rajoy thought he could form a grand coalition with the Socialist Party (PSOE) and with centrist party Ciudadanos, in order to share the responsibility of continuing to implement structural reforms with other “reliable” partners.

To do so, he threw Sanchez a bone, namely a number of concessions on the budget side (more government spending for schools and infrastructure) and half of the ministerial positions, but was eventually rebuffed when Sanchez refused to back down on his electoral pledge to revisit the PP’s labor laws. That was a red line for Rajoy.

Rajoy is surprisingly also having a hard time with Albert Rivera, the leader of centrist Ciudadanos, initially seen as a natural PP ally. Rivera had made a pledge during the campaign that he would not negotiate a coalition agreement with the PP unless Rajoy would step down, and to Rajoy’s surprise is sticking to it for now.

The PP leader and acting Prime Minister has therefore resorted to his fourth best option, to try and secure enough abstentions for a PP-alone government. For that to happen, he would need to get more “yes” than “no” votes. And Socialist sources confirm he might eventually succeed, just not so quickly.

From what we understand, Rajoy is likely to face his first confidence vote at some point after mid-August (most likely late August/early September), and both PSOE and Ciudadanos are intending to vote “No” this time around – a death sentence.

The next step for King Felipe VI might then be to put Pedro Sanchez in charge, and he too, we understand, and from Socialist sources no less, will not succeed. Sanchez is likely to propose the same platform he negotiated in March with Ciudadanos, and as happened in March Podemos is more than likely to vote “no.”

Then, and only at that point, sources in the Socialist Party expect Sanchez to cave – fearing a third election – and decide for an abstention to at least allow a Rajoy government to come to life. But Sanchez will in any case not offer steady support to the PP, and the government will be a very weak one.

And a final, positive outcome isn’t likely until at least the end of September. That is to allow enough time for the Socialist Party base to “digest” the concession, which is for now a serious political issue that threatens to split the party.

There is of course widespread preoccupation with solving the political impasse as Spain has to pass a budget in October. But good news has come from the European Commission, who has been extremely lenient and decided to give the country two more years to achieve its deficit targets.

We also have been reassured by sources on both sides of the Spanish political aisle that if needed passage of the budget can indeed be postponed, albeit only as an exceptional event.

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