On the stability of Spain after the vote of no confidence and its effects on the economic landscape.

FOREWORD: Spanish politics can’t be understood with the single, traditional left-right axis. A second, centrifugal-centripetal axis must also be considered.

Last Friday a vote of no confidence against the incumbent President Mariano Rajoy of the Popular Party (centripetal moderate right) removed him from office placing in his stead PSOE leader Pedro Sánchez (Socialists – neutral moderate left).

The vote of no confidence was ostensibly motivated by a court ruling declaring that the Popular Party had benefited almost a decade ago from a corrupt business scheme organised at the fringes of the party. While it is highly doubtful that Mr. Rajoy himself is anything short of squeaky clean the party supporting the Government itself was found guilty (a first in Spanish history) and other parties sought to take advantage of this loss of credibility.

The Spanish Constitution states that a vote of no confidence must be constructive. It is not enough to propose the removal of the incumbent Government, it must include a substitution candidate. Mr. Sánchez, as Secretary General of PSOE and leader of the opposition, was presented even though he is not a deputy himself.

The motion to remove Mr. Rajoy and appoint Mr. Sánchez was backed by almost the entirety of the parliamentary arch. It had the 84 votes of Sánchez’s PSOE, and those 67 of Podemos (“We Can”, centripetal, radical left), 9 of ERC (Catalan independentist left), 8 of PDeCAT (Catalan independentist right) 5 of PNV (Basque nationalist right), 4 of Compromis (Valencian nationalist left) 2 of Bildu (Basque independentist radical left, formerly the political branch of terrorist group ETA), and 1 of Nueva Canarias (Canarian nationalist moderate left) for a total of 180 votes when an absolute majority of 176 was needed for the motion to carry. Against Mr. Sánchez voted the 137 deputies of the Popular Party and the 32 of Citizens (centripetal catch-all). The single deputy of Coalicion Canaria (Canarian nationalist moderate right) abstained.

This could be interpreted as Mr. Sánchez winning office with the support of the most radical left and the no less radical Catalan pro-independence parties. While this may be true, it would be wrong to assume that it will condition his government action. The socialist leader was supported by these parties only as an effect of being united against a common foe – Mariano Rajoy. Once that cause for unity has been removed all parties have returned to their respective trenches and can be expected to continue quarrelling with each other.

The situation faced by the Sánchez Government is therefore as follows:

• He has almost no parliamentary support in the Congress of Deputies. In order to enact legislation he would have to either pact it with: (i) the Popular Party, who is unlikely to make any concessions to the people who took power from it; (ii) both Podemos and Citizens, an unlikely alliance since Citizens and Podemos regard each other with great animosity (Citizens sees Podemos as dangerous populists, Podemos sees Citizens as an opportunistic right-wing and resents them presenting themselves as the «sensible change» as opposed to Podemos’ radicalism) or (iii) to recreate a coalition similar to the one who put him in power which, considering the wide differences existing between them, would be like herding cats. To make things worse the Popular Party has an absolute majority in the Senate (149/266) which, Spain being a bicameral legislature, has also to pass any important law.
• This means that legislative action is likely to be kept to a bare minimum. The Government can still regulate urgent matters by way of Royal Decrees, but it can’t pass any meaningful laws nor approve next year’s budget this way.
• 2018 Government budget was approved by Congress with the votes of PP, Citizens and PNV, after a long negotiation in which Mr. Rajoy pledged 450M€ of investments for the Basque Country (something that Citizens  strongly objected to). However they have not yet been cleared by the Senate, where PP has already stated they will use their absolute majority to amend them, most likely to remove the Basque concessions. This will send the budget back to Congress where it is expected to pass, but not before the new Government finds itself in the awkward situation of having to defend a budget they voted against in the first place.
• The fact that the budget is all but passed, paired with the parliamentary weakness of PSOE, means that the new Government will basically have to rule according to the Popular program since as the budget is not a blanket  bill but assigns specific amounts to specific provisions. Therefore the economic landscape of Spain is unlikely to deviate from its current course as the new Government has its hands tied. No major swifts of policy should be expected.

As for the other major crisis point in Spain, the Catalonian situation can be expected to abruptly, albeit moderately, improve. I believe this to be so because of the following:

• PSOE has traditionally held a less centripetal posture than PP, and are generally viewed as more likely to talk and compromise than them.
• At street level a lot of the fraying nerves situation has had to do with the Popular Party in General and Mr. Rajoy in particular. Mr. Rajoy is seen by many as negatively discriminating Catalonia and the Catalans. He is an emotional figurehead, an embodiment of every perceived slight from the central Government that has made many Catalans feel insulted and rejected even before reaching office. In particular and in way of example, Catalans hold him responsible of taking the Estatut (Catalan autonomous fundamental law) back in 2005 to the Constitutional Court and have parts of it declared unconstitutional when the same provisions exist in other regions’ fundamental laws and were not treated that way. The removal of Mr. Rajoy is the removal of a constant reminder to many of why they are angry and distressed. Things can therefore be expected to cool down by this factor alone.
• Also, the entry of Mr. Sánchez gives an opportunity to all involved players to de-escalate the situation without losing face. The central Government can relax its pressure without fear of being accused of being incoherent. Catalan regional leaders can relax their posturing without being accused of  giving in to the despised Rajoy. It is my personal but founded belief that Catalan regional leaders, despite ostensibly claiming otherwise, know that they have been beaten, that independence is not an option at this time, and that it is in their best interest to return get back to the straight and narrow and use legal means only to further their ends.
• Please note that this change, while quick, will not happen straight away. A good indicator of the situation being about normalize is likely to be the rebellion charges against some Catalan leaders, which require a broad interpretation of the term “violence”, to be changed to lesser ones through a more strict and pro reo interpretation by the public prosecutor and/or the judiciary.
• It is thought, even claimed by some, that since Mr. Sánchez has had the support of the pro-independence parties he already has a deal with them that will significantly change the Government’s position on the Catalonian issue on the short term. I do not believe this to be true. First, as I mentioned above, the independentists only supported Mr. Sánchez as a way to dispose of a worse, and particularly despised, foe. An alternative candidate was necessary for a vote of no confidence and the independentists would have voted for the proverbial monkey with a machine gun if it hurt Rajoy. There is no love lost between Mr. Sánchez and Mr. Puigdemont or Mr. Torra.  Second, and when it comes to Mr. Sánchez’s intentions, his appointment of Mr. Borrell, a staunch pro-unity Catalan socialist that even has Citizens’ admiration, as first member of his cabinet is a clear statement of intentions.

The Sánchez Government is expected to face very strong opposition from all ends of the parliamentary arch. PP and Citizens can of course be expected to oppose him as they voted against his installation, but Podemos is most likely to be as belligerent as them if not more. Podemos is ideologically and sociologically placed at the far left and its natural electoral space to grow is into PSOE’s electoral basis. They are likely to play the identitarian left card and accuse the socialists of not being true leftists as they rule just as the Populars did, something that Sánchez is basically doomed to do with the current budget. Parliamentary instability and political posturing is all but guaranteed.

However, this is highly unlikely to end up with Mr. Sánchez calling for elections anytime soon. Recent polls show a huge swift in political support (please see the above graph), with Citizens clearly winning the elections at PP and PSOE’s expense. These two traditional parties are therefore unlikely to let the situation slip to a level of instability that would warrant new elections, and considering they control 221 out of 350 seats it is well within their power to defuse any alarming threats. It’s worth mentioning, however, that polls show that 65% of Spaniards favor going to new elections so it remains to be seen if the tide will actually change or Citizens, and most likely Podemos, will capitalize on that sentiment.

Finally, and to further the above point, it is most likely that the Rajoy government has fallen due to this fear to calling elections, in this case from PNV. The Basque nationalists had supported the budget and were expected to back the Government or at the very least abstain in the vote when Podemos, who is not particularly afraid of new elections, forced their hand by announcing that if the vote of no confidence didn’t carry they would follow Citizens’ proposal and present a second one with a neutral candidate who would immediately call for elections. It is my belief that, faced with the prospect of four years with a truly centripetal government that would be extremely hard to bargain with and has as a major point in its program to further equality among Spaniards by ending the traditional privileges of the Basque Country, PNV decided to go against his former ally  even if it meant risking the 450M€ in investments that they had secured from him.

To sum up, even if the ascension of Pedro Sánchez to the Presidency will mean several months of a weak Government in Spain, with much political posturing and debate, the economic landscape can be expected to be pretty stable, with no major, tangible changes due to the expected lack of meaningful legislation, and the social clashes in Catalonia to subside.