No-Deal Brexit Is Biggest Risk for Spain’s Economy, Sanchez Says
No-Deal Brexit Is Biggest Risk for Spain's Economy, Sanchez Says
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Spain’s acting Prime Minister Pedro Sanchez said the biggest threat to the country’s economy is the prospect of the U.K. leaving the European Union without an exit deal next month.
“In the short term, Brexit -- a no-deal Brexit” is the greatest risk to Spanish economic growth, Sanchez said in an interview at the Bloomberg Global Business Forum in New York. “Not only for Spain, but for the global economy,” he added.
British Prime Minister Boris Johnson has vowed to lead his country out of the EU on Oct. 31, whether he’s negotiated a withdrawal agreement or not. He’s insisted that a turbulent departure remains on the table despite opposition from Parliament and the U.K. courts. A no-deal Brexit would pose a particular challenge to Spain, which is home to the biggest contingent of British nationals on the continent and has deep business ties to the U.K.
Scottish Separatists
Sanchez, 47, said the U.S.-China trade war is a serious risk to Spanish and global growth, too, and that he’s wary of the political fallout from Britain’s pending exit.
Scottish separatists have been agitating for their own referendum on independence which might allow them to re-join the EU after Brexit. Sanchez said such a vote would be a “domestic political issue,” adding that in general referendums tend to cause more problems than they solve.
Spain faced its own separatist threat in 2017 when Catalonia held an illegal referendum in an attempt to break away from Madrid. Fear of emboldening the Catalan nationalists again has made Spanish officials extremely wary of any kind of independence push. Sanchez refused to be drawn in on whether he’d support Scotland joining the EU if the U.K. were to split.
“We’ll think about it,” he said. “I always explain to the pro-independence movement in Catalonia that the referendum is not a solution, it divides societies and creates a huge fracture in society.”
In Spain, Sanchez is trying to convince voters on the campaign trail that he is best placed to ease those tensions and ensure there’s no resurgence of Catalan attempts to secede.
Spaniards will face their fourth general election in as many years in November after Sanchez failed to secure support from rival parties to clinch a second-term as premier. Sanchez’s center-left Socialist Party is set to once again win the greatest number of seats and remain far short of the majority he needs to be appointed prime minister.
The Socialist leader may be betting left-leaning voters will rally around his party at the expense of anti-austerity group Podemos, strengthening his hand in the ensuing negotiations. Sanchez says he wants to govern solo and won’t bow to demands from Podemos to form a coalition.
Missed Opportunity
While Spanish lawmakers have been mired in deadlock, the country’s economy has been slowing and deep-seated problems in the dysfunctional labor market have not been addressed. Spain’s unemployment rate is 14%, the second-highest in the EU after Greece.
Economists at Spain’s central bank now expect output to expand by 2% this year, down from the 2.4% they forecast in June. While that’s a slowdown for Spain, the growth rate still easily outpaces the outlook for other major euro-area economies. Germany is on the brink of a recession and Italian growth has stagnated.
The greater-than-expected deceleration underscores the concern among both economists and voters that Sanchez is running of time to implement policy changes to try to boost Spain’s long-term prospects.
“There have been very few significant economic reforms in recent years,” Bank of Spain research head Oscar Arce told reporters Tuesday. “We haven’t made the most of a situation that was optimum to launch reforms.”
To contact the reporters on this story: John Micklethwait in New York at micklethwait@bloomberg.net;Jeannette Neumann in Madrid at jneumann25@bloomberg.net
To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Richard Bravo
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