Greek "Anti-Austerity" Wave Spreads In Dramatic Loss For Spanish Status Quo

Last week in “Portugal’s Left Wing Forces Threaten Troika Revolt,” we highlighted the country’s Socialist Party which is enjoying a lead in the polls ahead of elections expected in October and which has pledged to implement a “reverse policy” as it relates to austerity and the country’s creditors. We argued that the ascendancy of left-wing political parties across the periphery means Europe will take an increasingly hard-line stance in negotiations with Greece. Here’s how put it:

The reason why concessions (any concessions) to the Greeks are a non-starter in Athens' negotiations with creditors is that the IMF, the European Commission, and most especially Germany, want to send a clear message to any other 'leftist radicals' who may be thinking about using the "one move and the idea of EMU indissolubility gets it" routine as a way to negotiate for breathing room on austerity pledges, will get exactly nowhere and will have a very unpleasant time on the way.

With just 10 days until a June 5 IMF payment that Athens almost certainly will not make unless it strikes a deal for the disbursement of more bailout funds, things just got quite a bit more interesting on the political front after Spain’s Popular Party was dealt a dramatic electoral blow on Sunday by the leftist Podemos and center-right Ciudadanos. WSJ has more:

Spanish voters punished the governing Popular Party in regional and municipal elections, throwing significant support to two upstart parties that capitalized on anger over high unemployment, cuts in public spending and corruption.

 

Near-complete returns showed that Prime Minister Mariano Rajoy’s conservative party was assured of retaining control of only three of the 13 regions that elected parliaments Sunday. That is a reversal of the party’s dominance in 2011, when it won in 10 regions, eight with absolute majorities.

 

Although it gathered the most votes nationwide, the Popular Party could be hard-pressed to form functional governments in many former strongholds, including the city of Madrid, without support from smaller parties.

 

“It’s a brutal wake-up call from Spanish society to a party that has enjoyed a hegemony in parts of this country,” said Emilio Sáenz-Francés, professor of history and international relations at Comillas Pontifical University in Madrid.

 

He said the vote would usher in a new era in Spanish politics, obliging humbled establishment parties to resort to horse-trading and coalition-building with rivals to ensure governability.

 

In a possible foretaste of national balloting late this year, in which Mr. Rajoy is seeking a second term, his party’s share of the nationwide vote fell 10 percentage points from its 37% in local and regional elections four years ago. Voters moved to two upstart parties,the leftist Podemos and the center-right Ciudadanos.

In Barcelona, the anti-poverty, anti-eviction activist Ada Colau (who leads Barcelona En Comú) was elected mayor in what she called a victory “for David over Goliath,” and the PP also appeared weak in Madrid. 

Via The Guardian:

A grassroots movement of several leftist political parties, including Podemos, and thousands of citizens, Barcelona En Comú vowed to return decision-making in the city to the people, promising to do away with home evictions, increase public housing and redistribute the city’s wealth. Colau’s party won 11 of the 41 seatson the city council, meaning that she will need to form alliances in order to govern.

 

In Madrid, the People’s party is not certain of hanging on to power in a city where it has dominated for two decades.

 

The PP candidate, Esperanza Aguirre, 63, who is a countess by marriage, squeaked ahead in Sunday’s vote, winning 21 council seats in the city.

 

Aguirre is seen as a hard case but she got a run for her money from “indignada” candidate Manuela Carmena, whose Podemos-backed coalition Ahora Madrid came a close second.

 

The results suggest that coalition building will now begin, a process that will likely be complicated by the fact that some voters could feel betrayed were Podemos or Ciudadanos to cooperate with their rivals. 

Here’s The NY Times summing things up…

The elections, however, failed to produce the kind of clear-cut winner of four years ago, when the conservative Popular Party swept to power as voters punished the Socialists for sinking Spain into an economic crisis. Instead, Sunday’s vote is likely to be followed by tense coalition-building negotiations in Madrid as well as across much of the rest of Spain.

 

The elections were seen as a bellwether for the governing Popular Party and Prime Minister Mariano Rajoy’s own chances of winning general elections later this year.

 

While the Popular Party won the most votes, according to preliminary results, it was set to lose its parliamentary majorities in most, if not all, of the country’s provinces. That setback raises the likelihood that left-leaning parties will join forces in the coming weeks to remove the Popular Party and form coalition governments.

...and Barclays has some color on coalition building…

We think that neither of the two new parties, Podemos and Ciudadanos, will be keen on coalitions with either PP or PSOE in the near term. As argued above, these parties could be penalized by voters if they do form coalitions and find compromises ahead of the general elections to be held in the autumn. Moreover, both parties have been running on strong manifestos against corruption, therefore they are likely to set very strong red lines on these issues in order to be willing to give their support to any of the two traditional parties. However, a key difference between the new parties is that Ciudadanos may be relatively more likely to form coalitions with either PP or PSOE, as its policy agenda may be closer to the traditional parties relative to Podemos. Instead, Podemos is highly unlikely to form coalitions with the conservative PP…

 

The most important take away of this weekend’s regional and municipal elections in Spain (24 May) is what we will learn in the coming days/weeks from the behaviour of the four main parties (PP, PSOE, Podemos and Ciudadanos), as the results delivered few absolute majorities. These four parties will have to engage in complex coalition talks. Podemos and Ciudadanos may set ‘red-lines’ when they engage with PP and PSOE. In fact, in some cases they may choose to let minority governments be in charge, as coalitions could carry a high political cost for junior coalition partners ahead of the general elections in Nov/Dec 2015 (no specific date set yet).

The results indicate that patience for 25% unemployment and austerity is wearing rather thin. We imagine there will be quite a few closed door discussions between the 'institutions' as it now appears exceedingly likely that Spain will pursue a mandate that mirrors the election promises which helped Syriza sweep to power in Greece earlier this year. 

This will make it more difficult for Greece to win concessions at the negotiating table as the troika will want to be extremely careful about what kind of message they're sending to the currency bloc's other "ascendant socilaists."

As a reminder, here is what 'austerity' looks like in a heavily-indebted EU periphery nation: