Spanish Prime Minister Rajoy Ousted From Power; Sanchez Is New Socialist Prime Minister

As was widely expected, this morning Mariano Rajoy's six year reign as Spain's prime minister, ended when he become the first prime minister in Spain’s democratic history to be ousted by parliament after losing a vote of no-confidence amid a corruption scandal engulfing his Popular party. He will be replaced by the Socialist opposition leader Pedro Sánchez.

A small but sufficient majority of Spanish lawmakers was sufficient to end Rajoy's career, voting 180 to 169 to remove the prime minister, cutting short the second term of one of Europe’s longest-serving leaders currently in power. The center-left Socialist Party had called the no-confidence vote last week and proposed its leader to replace Mr. Rajoy.

Rajoy takes his seat at Parliament before the vote of a no confidence motion in Madrid, June 1. Photo: Reuters

Quoted by the FT, in his brief final speech to parliament, Rajoy bade farewell to the country after seven years in power: “It has been an honour to leave Spain better than I found it. Thank you to all Spaniards and good luck.” The speech came after a last meal of sorts:

Mr Rajoy spent eight hours in a Madrid restaurant on Thursday afternoon instead of sitting through the first part of the parliamentary debate, but appeared composed on Friday during his resignation speech.

Socialist Party leader Pedro Sánchez, who becomes prime minister immediately, told lawmakers that his policy goals include bolstering social policies to address problems such as unemployment and poverty levels, both of which remain high despite Spain’s strong growth. Among Sanchez' challenges will be managing the eurozone’s fourth-largest economy and dealing with internal problems such as the crisis in Catalonia.

The new socialist prime minister will lead a weak minority government with just 84 seats in parliament, part of a coalition that includes a "hodgepodge" of different political parties, including the far-left Podemos group and a string of regional national parties including the Basque Nationalist party and two Catalan nationalist parties; this suggests a tumultuous time is in store for Spain both before and after the upcoming elections.  Indeed, as the WSJ notes,  the new premier's minority government will struggle to pass legislation and has already promised to call parliamentary elections ahead of the current 2020 deadline.

The leader of the liberal Ciudadanos party, Albert Rivera, labelled this a “Frankenstein government” due to its lack of unifying views. The Catalans want full independence from Spain, for instance.

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Rajoy's ouster comes just as an antiestablishment government comes to power in Italy, now home to Western Europe’s largest anti-establishment movement, after a three-month power vacuum.

Paradoxically, coming at a time when Europe is supposedly "growing" and following several years of ECB QE meant to stabilize Europe, the two high-profile political crises this week in southern Europe underscore the social and economic scars still borne by the region years after the eurozone’s 2011-12 crisis, damage that is feeding political discontent and stirring hunger for change.

Rajoy had seen his support steadily erode since he became prime minister in 2011 and began to enact a series of painful economic reforms during the eurozone crisis. He has shouldered much of the political blame for a recovery that has left millions of Spaniards behind. He is the first Spanish prime minister to be unseated in a vote of confidence.

That is not to say he didn't bring it on himself: after numerous lawsuits and years of corruption allegations against Rajoy’s Popular Party came to a head last week when a top Spanish court ruled that his party financially benefited from an illegal kickback scheme. The party has said it would appeal the ruling.  Rajoy hasn’t been charged and denies knowledge of the scheme, however if recent events in other developing nations such as Malaysia are an indication, the public will demand a fall guy, and it may be only a matter of time before Rajoy finds himself behind bars.

For now, however, there is celebration that some order has been restored, with Spain's Ibex 35 1.8% higher, while Spanish 2Y yield have tumbled to -0.12%, after hugging the unchanged line for much of the past 2 days.