How Spains Political Deadlock is Affecting Its Economy

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How Spains Political Deadlock is Affecting Its Economy

March 22, 2016

 The Spanish General Election of December, 2015 threw the most confusing set of results that the country has ever seen. Three of the top political parties won exactly 20 percent of the votes, while a fourth won 15 percent. And none of the political parties like each other, so there isn’t much of a potential for a coalition government either. As a result, we have a political deadlock in Spain, which continues even today, even though it has been 3 months since the election results were announced.

 If you are looking to sell your overseas property in Spain, this could be deeply frustrating to you, as it hasn’t been long since the Spanish economy recovered from the recession and things were looking quite good in the property market. But now, there’s a lot of confusion in the country and it’s unlikely that any major decision will be taken by anyone regarding the economy in the near future. There’s a political impasse in Spain and it looks like there’s nothing that anyone can do about it.

The political stalemate is hurting the national economy really badly. Consumer sentiment in Spain was on a high until this happened. There’s a lot of uncertainty among the Spanish public about which way the country is headed, even as the politics at the top drags on. None of the parties – whether at the left, right or centre, seem to agree on setting up a government. 

 Things were going quite well in Spain, so it was a bit of a surprise when the public voted in a fragmented parliament to power, voting out the ruling conservatives. Because of the political impasse, the ousted Prime Minister Mariano Rajoy continues to remain as a weak caretaker prime minister.

All efforts made to break the deadlock have failed as all the political parties have conflicting idea on important issues such as tax rates and public spending. Nobody seems to agree on anything related to the economy.

 There has never been a coalition government in Spain before. For more than three decades the Conservatives and the Socialists took turns to form the government. Now the traditional parties have to deal with two political upstarts that have done phenomenally well in the elections, the centrist party Ciudadanos, which is business friendly and the far-left Podemos, which wants more restrictions to be imposed on businesses and foreign investment in the country.

All opposition parties are at least united on one thing – nobody wants to support the caretaker Prime Minister Rajoy, who was shown the door by the Spanish public. The new political parties, Podemos and Ciudadanos, detest each other and simply refuse to join any government that would include the other.

For this reason, the Socialists' plan of creating a joint coalition government of all opposition parties has so far failed. All political parties have until May 3 to come to a decision on forming a government. Otherwise, as it looks likely, a new election will be called. The only problem – if opinion polls are anything to go by, the new elections, when they are held later this year, will throw in an even more fragmented mandate!

That’s why business confidence is at a real low in Spain and foreign investors are completely confused about what to do with their Spanish investments. Most foreign investors are in a “wait and watch” mode, to see what happens in the Spanish parliament before taking a decision.

Angel Ron, who heads the Banco Popular says, "The information we've been getting from our branches since December is that clients are being a little more cautious when it comes to buying a car or a home.”  

The stakes are very high for the Spanish people and the political deadlock couldn’t have come at a worse time for them. As a Spanish real estate developer said, "We need a government NOW!"