Greek-style populist upset unlikely

Economics
Chart of the week
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CHART OF THE WEEK . . . CHART OF THE WEEK . . . CHART OF THE WEEK . . . CHART OF THE WEEK
20 March 2015
Spain: Greek-style populist upset unlikely
Despite rise in polls, Podemos remains far behind pro-European parties in Spain
70
60
50
40
Pro-European parties
30
Podemos
20
10
0
Jan 2014
Apr 2014
Jul 2014
Oct 2014
Jan 2015
Voting intentions, in %. Average of last five polls. Pro-European parties = sum of Popular Party (PP), Socialists Party
(PDOE) and Citizenry Party (Ciudadanos). Source: various polling institutes
•
Political risks can pose a threat to Eurozone growth in 2015. Despite nearly two years of recovery from the euro
crisis, the legacy of high unemployment, public sector spending cuts and tax increases weigh on the popularity of
mainstream politicians who took the painful but necessary reform decisions at the euro periphery. In Greece, snap
elections brought a double-populist coalition to power with disastrous consequences for the Greek economy and
inconveniences for the rest of the Eurozone.
•
Greece is small; even a major Greek accident could be contained. Since 2012, the Eurozone has built firewalls
including the ECB’s OMT programme and the €500bn rescue fund, ESM. With the ECB buying sovereign bonds to
ease its policy stance, contagion risks have diminished. But Greece is not the only country with elections this year.
Former crisis countries Spain and Portugal face general elections in the autumn.
•
Could Spain follow the bad Greek example? The radical left Podemos party has risen to prominence and in the polls
with demands quite similar to those of Alexis Tsipras’s Syriza, including debt haircuts, nationalisation of banks and
strategic industries, unconditional minimum income and more power to the unions. With Spain currently
independent of Eurozone financial assistance, Podemos could theoretically implement its policies if it can convince
investors to continue funding Spain’s budget deficit, expected to be 4.5% of GDP in 2015. A very big if.
•
It is very unlikely that Podemos’s Pablo Iglesias will be able to run a populist government like Tsipras in Greece
for a number of reasons: (1) Podemos’s rise in the polls has stalled since December, as rising media attention has
uncovered financial irregularities and Venezuelan links. (2) The pro-European mainstream has splintered but
ultimately been strengthened by the overdue emergence of a liberal protest party with sensible economic policies,
Ciudadanos. In the last five polls, centre-right PP was running just below 25%, centre-left PSOE around 20% and
Ciudadanos at 12% with the last two polls showing them at 18%. (3) Even if Podemos does come first, it would be
nowhere near an absolute majority as there is no winner’s bonus like in Greece. It would need a coalition partner for
which only pro-European parties are available. (4) The Spanish parliamentary seat distribution system favours
regionally focused parties, which helps PP more than Podemos. (5) Spain’s economic recovery is more advanced than
Greece’s. By the time of the election, unemployment will have dropped from a peak of 26.3% to just above 22%.
•
Syriza is a liability for populists across Europe. The economic disaster Tsipras & co. have caused in Greece within a
record short period of time should be a warning example. Whether Syriza now makes a complete and embarrassing
U-turn to keep Greece in the Eurozone or takes the country with it into the abyss of Grexit, most voters in Spain and
elsewhere will not want to emulate that example and endanger the unfolding upswing.
Holger Schmieding
Chief Economist
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Christian Schulz
Senior Economist
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Robert Wood
Chief UK Economist
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[email protected]
Economics
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