The pain in Spain is mainly down the drain

Since 2015, Spain has been the Eurozone’s high performer. Now we have had an election and the Far Right is a long, long way from taking power. Should investor’s be celebrating?

Article updated: 30 April 2019 11:00am Author: Michael Baxter

As a rule, in politics, I don’t like the word ‘Far’. The Far Right especially scares me, the Far Left are often well meaning, but pursue impractical economic policies that can lead to crises. I have found the rise of extremes across the world alarming: such developments will lead to social unrest, and that can never be good for either the economy or investors.

Take the UK. If the Far Right, or even fairly Far Right, gain power, there will be, I promise you, a massive backlash. Consequences will include the break-up of the UK, and if we see the rise in anti-liberal politics, I predict the rise of an independent London party within ten-years.

But what is the driver? I don’t blame social media, as some do, although it has certainly stoked strength of opinion. No, I blame 2008, the crisis of that year which was followed up by austerity.

It has been a global problem, which is why the Far Right has proved so popular worldwide.

But for me, the economy is never far from explaining political shifts. In the UK, the last ten years have been awful for the economy, therefore politics is in crisis.

In Spain, following the disastrous first half of this decade, the last four years has been rather good. GDP has expanded by 12 per cent, against seven per cent for the Eurozone average, over this period. Public debt seems to have topped out at just under 100 per cent of GDP, and unemployment has fallen sharply. Of course, it is not all good. Unemployment is still too high at around 13 per cent, and while Spain is expected to remain one of the Eurozone’s fastest growing economies for some time, growth is expected to slow.

Good economy: more stable politics

The recent Spanish election has seen the centre left socialist party win more seats than any other party. The right wing has become fragmented: with the Conservative party losing popularity and the Far Right gaining it. But while the Far Right, Vox party, won 26 seats, the highest number of seats won by an ultranationalist party since the death of Franco, this was less than expected.

Of the 350 seats that make up Spain’s congress, the socialists led by the current prime minister Pedro Sánchez, won 123. That is 37 up on the last election in 2016. In combination with the Far Left, Mr Sánchez will have 166 votes. He just needs to cobble together a few more seats to form a stable government.

As I said above, I don’t like ‘Far’ anything in politics. But at least what we have seen in Spain is a vote for stability, and the increasing popularity of the centre left.

Plagued by corruption scandals, the centre right tried to gain popularity by moving sharply to the right and the policy failed. I hope moderate right wing politicians learn that lesson elsewhere.

I would say that on balance, the Spanish people have bucked the political trend towards populism and the middle ground has become more solid.

This is good news for the economy, good news for political stability and good news for investors.

There is one big question mark though. Will Mr Sánchez have to court support from the Catalan separatists?

It seems that he probably won’t, but if he does, this will be a highly significant development. Maybe the biggest factor holding back lack of support for an independent Scotland is the view that the EU would not be supportive of such a move. And the reason for this relates to Spanish fears over Catalan. Should the separatists gain influence in Spain, support for an independent Scotland will grow.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.

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