Spain’s citizens are likely to replace the current government and vote for a new one in the upcoming elections – looks like democracy in action. But are they really voting for some kind of change. Yet again, the citizens are not really calling the shots.
The recent crisis has shown that citizens of European countries have much less control. This is the second article in the series – the previous one covered Greece. The economic situation might be far better, but the political picture is similar.
The euro-zone’s fourth largest economy had a housing bubble, similar to the US. The low interest rate of the ECB during the mid 2000’s contributed to the bubble. When the bust came, Spain found itself unprepared and its unemployment rate soared over 20%, with youth unemployment above 40%.
The country is in crisis and the socialist government fell short of resolving it. Cuts were made in education and health services and this angered many. Citizens took the streets from May 15th, a significant step in global protest and demonstrated their discontent with austerity measures.
What is the normal thing that would happen in a democracy? The government would be replaced with a new one, and policy would change. Elections were indeed brought forward to November 20th – this Sunday.
And then stronger forces came into play.
When global markets became nervous in August and Spain’s yields rose (together with Italian yields), the ECB finally stepped in. This didn’t come without a price: Spain was required to take further action, similar to the demands made to Italy. The ECB expressed showed everybody who’s the boss, although it was in a more subtle way than in Italy.
Contrary to Italy, Spain complied really well. New austerity was introduced and Spain even took one extra step: it introduced a “debt ceiling clause” in its constitution: only the second change in the constitution since the return of democracy in the 70s.
The constitution change passed with the blessing of both major political parties. So, what’s the difference between the parties?
The ECB (and the markets) gave a small carrot to Spain: Spanish yields fell below Italian yields and Spain was out of the debt crisis limelight for some time.
Moves Before the Elections
Recent polls show that the opposition center right PP party will win, but an absolute majority in parliament is not certain. An absolute majority would make the passing of new austerity measures much easier and can help secure an aid package that was reportedly already negotiated with Germany.
So, what happens in the markets? Spanish bonds are in flames again, with the yields at a fresh 10 year auction reaching 7%. It does wonders: the Spanish press is full of scary headlines about the risk premium and the upcoming “rescue”.
But do the results of the elections really matter? Also here, as in Greece, the markets, and the ECB in particular make politicians look like puppets.
The level of interest towards the elections seems very low, at least in Barcelona.
What do you think? Also Italy was forced to replace its government, and while the head of state looks more serious than the previous one, the result for the citizens may not be so different. More on that soon.Get the 5 most predictable currency pairs