March 4, 2021

Repeating elections could damage confidence in the Spanish economy

Madrid, July 8 (EFECOM) .- The uncertainty about the future government does not affect the Spanish economy, which continues to enjoy foreign confidence, although analysts consulted by Efe fear that a repetition of the elections may begin to undermine the international expectations

For some analysts one of the worst signals that could be sent is the maintenance of the current budget extension of the 2018 accounts, since not enough support to approve new budgets for 2020 would generate greater instability.

"It would be the confirmation that there is no stable government majority and that right at the start of the Legislature it is not possible to support the budget, and that would clearly generate more uncertainty, increase the risk premium and surely generate a situation of greater political instability of the current one, "says analyst Gonzalo García, of Analistas Financieros Internacionales (AFI).

Also for the director of Conjuncture and International Economy of Funcas, Raymond Torres, the absence of budgets could lead international investors to think that they will not be able to carry out reforms.

The director of Economic Analysis of IE Bussines School, Rafael Pampillón, disagrees, believing that keeping budgets carried over "is not necessarily bad" for an economy that could be worse off with expansive accounts in public spending and with higher taxes that slow down activity .

"Even today the Spanish economy benefits from an extra confidence in Italy, and even in France," says Torres (Funcas), who considers that the political paralysis has not had "an obvious impact".

However, he believes that new elections could put in question the maintenance of economic growth, which would have a negative impact on international expectations regarding the Spanish economy.

García (AFI) points out that it is still early to know if the slight slowdown in activity that has been observed in the second quarter is the result of political paralysis.

In his opinion, the repetition in June 2016 of the general elections of December 2015 had no effect on the Spanish economy, although he recalls that the growth rate at that time was higher than at present, so he believes that a repetition election would now be more damaging.

In this regard, Pampillón (IE) explains that circumstances are now different globally and that it is the international deterioration that slows down the Spanish economy, which on the other hand "is doing quite well, with high growth and employment generation".

However, he acknowledges that although at the moment the political paralysis is not evident, it may end up affecting foreign investment "and we do not know very well the rules of the game".

"What national and international investors expect is greater clarity regarding the path of reforms that the new government will make," says Torres (Funcas), who believes that the markets are more concerned with the objective of the reforms than the concrete design of them.

International investment reached a record in 2018 at 46,827 million euros gross, 71% more than the previous year, which together with interest rates of public debt at historical minimums shows that confidence in the Spanish economy is maintained, according to García (AFI).

In case there is a new socialist government, Garcia believes that he will make an economic policy consistent with what he has done in recent months, in which the discourse on the 2012 labor reform of the PP has gone from wanting to repeal it to change only the most damaging aspects, to end up redirecting the debate towards a more general reform of the Workers' Statute.

For Torres (Funcas) to make reforms in the field of education, innovation, the labor market or the tax system is now more important than fiscal discipline, since Spain is outside the so-called "corrective arm" of Brussels to the have cut the public deficit below 3% of GDP.

In his opinion, the most important thing is to carry out a reform that will generate stable employment and bring it closer to the needs of companies, as well as a tax reform to achieve more, with a review of company deductions and bonuses for employment .

On the other hand, for Pampillón (IE), the reform of pensions is a priority in order to make the system financially viable in the long term, since otherwise "taxes will have to rise a lot to the detriment of economic activity".

(tagsToTranslate) Repeat (t) choices (t) deteriorate (t) confidence (t) economy

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