Spain's Election Is a Radical Opportunity

(Bloomberg Opinion) -- For those wondering whether the center-left can bounce back in Europe after a difficult decade, Spain offers a glimmer of hope. On Sunday, Pedro Sanchez led the country’s Socialist Party to its first victory in a general election since 2008, winning nearly 30 percent of the vote.

The Socialists will now pick their coalition partners as they seek to form a government. The choices are an alliance with the far-left Podemos and a hodgepodge of regional parties, or a coalition with Ciudadanos, a centrist movement led by the youthful Albert Rivera. Should Sanchez and Rivera be able to reconcile their parties’ differences (a very difficult task, but one the Socialist leader hasn’t ruled out), it would offer Spain the best chance of a stable administration to keep it on the path of economic reform and recovery.

The election followed a trend increasingly common in European polls: Fragmentation. Five parties won more than 10 percent of the vote. There was a clear loser, though. Pablo Casado, leader of the center-right People’s Party, won just 16.7 percent of the vote, halving the number of his party’s deputies from 137 to 66 in its worst result since 1989.

Much of the PP’s vote went to Vox, a far-right nationalist party which will enter the Spanish parliament for the first time. Casado tried to stop his supporters flocking to Vox by taking the PP to the right on issues such as immigration and abortion, but in doing so he lost many moderates too. His unhappy campaign offers a familiar lesson to mainstream parties in Europe: There’s no point mimicking the extremes, as voters will usually prefer the original to the copycat.

The big winner of the night was Sanchez, the indestructible force of contemporary Spanish politics. Having lost to the People’s Party twice in consecutive elections in 2015 and 2016, he resigned as the Socialists’ leader. He then won back the post in 2017, before ousting the PP’s Mariano Rajoy as prime minister last June after a parliamentary vote of no confidence. Sanchez was, however, unable to pass a budget because his coalition was too divided, so he had to call another general election. His softer approach toward Catalonia’s separatists and promises of higher spending helped him build support.

The Socialists still only won 123 out of 350 seats in Spain’s lower chamber of legislators, which is why Sanchez will have to govern with Podemos or Ciudadanos. The far-left party has slumped in the polls since its strong showing in the mid-2010s, so the Socialists would need the support of regional nationalist parties too should they team up with Podemos. These include the Basque Nationalists and – more controversially – Esquerra Catalana, a moderate Catalan separatist group.

An alliance with Ciudadanos looks harder to pull off. Rivera and Sanchez exchanged blows during the campaign, with Rivera ruling out a deal with the Socialists. On Sunday night, as Sanchez spoke for the first time since his win, his party’s supporters chanted “With Rivera, no,” signalling the opposition among activists to a deal. Rivera is unpopular on the left because of his outspoken criticism of Sanchez and his decision to drive Ciudadanos to the right, notably in forming a governing pact with the PP and Vox in Andalusia

And yet, a coalition between the Socialists and the centrists would offer the best way forward for Spain. For a start, it would be formed of two large groups, which both made impressive gains in the election. Ciudadanos nearly doubled its number of seats from 32 to 57, capitalizing on the PP’s lurch into Vox territory. Sanchez has already experienced the difficulty of attempting to govern with a fragmented alliance made up of leftists and regional parties. This time, he should at least explore a different route.

Spain would certainly benefit from a mixture of the Socialists’ desire for greater wealth redistribution, and Ciudadanos’ pro-business agenda. The economy expanded by 2.6 percent last year, but growth is expected to slow in 2019. Last year, Sanchez presented a sensible left-wing budget, which would have kept the country’s deficit in check while increasing taxes on high earners to boost disability and unemployment benefits. A Podemos alliance would risk undermining Spain’s improving competitiveness by hiking taxes too far and potentially unraveling the country’s labor market reforms.

Sanchez has wisely kept his options open, saying he’s willing to negotiate with everyone, but his party’s base may push him to the left. For his part, Rivera may calculate that it’s better to stay in opposition and try to become the dominant force in the center-right grouping, as the PP collapses. Yet that could easily backfire. Podemos sought to do the same with the Socialists a few years ago but is now firmly in the backseat.

Spain has defied expectations after bouncing back from the euro zone crisis, and is growing faster than Germany, France and Italy. If Sanchez and Rivera can get beyond the antipathy, the economic gains could be even greater.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Ferdinando Giugliano writes columns and editorials on European economics for Bloomberg Opinion. He is also an economics columnist for La Repubblica and was a member of the editorial board of the Financial Times.

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