Spain: Political Risk

May 2015

Afis dedicated website for Research on Spain (www.afi.es/ros)

Index
1. Recent developments

Spanish governments since the transition

Evolution of political environment since last general elections

2. Timeline and procedures

Timeline of European and Spanish elections in 2015

Spains electoral system

Process of government formation

3. Regional and municipal elections

Importance of regional elections

Projections and regions to watch

Scenarios for pact-formation following regional elections

4. National elections and policy implications

Evolution of latest polls

Movement of votes between parties and factors influencing final outcome

Scenarios for pact-formation after national elections

5. Catalonia & independence

Evolution of independence sentiment and latest polls

Roadmap of pro-independence parties

Key Points (1/2)

Regional elections on 24 May in 13 of Spains 17 regions and municipal elections across all of Spain
are a staging point ahead of general elections at the end of 2015.
Regional elections are important because: (i) regions control 35% of expenditure and are vital for
implementation of national policy, (ii) the distribution of votes in regional elections may provide an
indication of how voters will approach national elections and (iii) the need to form governing pacts may
force parties to reveals their cards ahead of general elections.
Latest opinion polls for regional elections point to a significant increase in fragmentation compared
to 2011. In 2011, the PP won absolute majorities in eight regions and was the senior party in two other
regional governments. Latest surveys indicate that the PP could be the most voted party in nine regions but
only has a realistic possibility of an absolute majority in Castilla y Len.

A wide range of coalition scenarios are feasible. In the absence of bilateral pacts between PP and PSOE
(theoretically possible in most regions), Ciudadanos, Podemos and regional parties could play a significant
role in government formation.
The key question is whether national parties are willing to reveal their preferences regarding preferred
coalition partners ahead of general elections so as to govern at the regional level. We see three scenarios:
(1) abstention until general elections, (2) strategic pacts dictated by national party leaders, (3) nonstrategic pacts depending on regional arithmetic and interests.

Key Points (2/2)

The latest national polls point to a degree of stabilisation in vote intention ahead of general elections.
PP and PSOE vote is recovering slightly, support for Podemos is starting to fade, meanwhile Ciudadanos
continues to consolidate its recent gains. The rise of Ciudadanos and the softening of Podemos leftwing rhetoric has shifted the debate towards the centre.
Recent developments in Greece and the surprise Conservative victory in the UK provide a boost to the
PP, while the strengthening economic recovery also provides tailwinds to the current government. However,
Spain-specific factors such as ongoing corruption scandals and the ability of new parties to positively
influence the agenda in post-regional election pacts could undermine support for traditional parties.
We envisage three possible outcomes following national elections: (a) formal coalition between centre
parties a market positive outcome that could generate consensus around still needed reforms, (b)
minority government reliant on ad hoc support neutral or slightly negative, (c) a coalition of the left
market negative given the potential influence of far-left parties and the risk of reform rollback.

New parties could play a crucial role in injecting new life into the policy position of the next Spanish
government. There is potential for a new consensus to emerge around reforming regional finances
(especially, harmonising tax powers), measures to reduce corruption and reform of electoral
institutions, as well as some simplification of individual debt restructuring procedures.

Recent developments

Since the Transition, Spanish politics have been dominated by two parties. Seven
out of eleven governments were minority governments.

Factors contributing to stability:

Motion of no confidence (art.113 of

Spanish Constitution) requires vote
in favour of alternative governing
proposal
Role of nationalist parties:
nationalist parties have propped up
minority governments in return for
concessions
Experience at regional level:
governments at regional level have
seen coalitions of all colours e.g. PPIU in Extramadura

Source: Afi.

However, EP elections in May 2014 marked a sharp drop in support for the two main
parties, which has been sustained in recent opinion polls.

Vote in European Parliament elections in

2009 and 2014

Percentage share of vote of two main

parties, average of monthly opinion polls

-2.5m
-2.5m

Source: Afi, various opinion polls.

Displacement of votes first towards Podemos and, more recently, Ciudadanos. The
principal drivers are the economic crisis and corruption.

Estimated vote in general elections

(monthly average of polls, %)

Source: Afi, various opinion polls, CIS.

Top three problems cited by Spanish public

Timeline and procedures

2015 a year of elections in Spain. Regional and municipal elections in May the
first test of new political environment.
22 March

24 May

Source: Afi.

Elections in Andaluca

Municipal elections (all Spain)

Regional elections (all regions except for Galicia, Basque Country, Catalonia and Andaluca)

27
September

Plebiscitary elections in Catalonia

SeptemberOctober

General elections in Portugal

October

General elections in Poland

November December

General elections in Spain

10

Spanish election
(general election)

mechanics

There are 350 seats in the Spanish Parliament.

Seats are distributed across Spains 50

provinces, plus Ceuta and Melilla as follows:

Source: Afi.

Each province is assigned a minimum of 2

seats (2 x 50)
Ceuta and Melilla are assigned one seat
each (1 +1)
The remaining seats (248) are distributed
proportionally across provinces according
to the population in each province

For the 2011 general elections, seats were

assigned across provinces as set out in the table.
The distribution of seats may vary according to
changes over time in the proportion of population
living in each province.

Number of
seats

Provinces

36

Madrid

31

Barcelona

16

Valencia

12

Alicante, Seville

10

Mlaga, Murcia

Cdiz, Biscay, La Corua, Balearics, Las

Palmas, Asturias

Tenerife, Zaragoza, Pontevedra, Granada

Tarragona, Crdoba, Gerona, Guipzcoa,

Toledo, Almera, Badajoz, Jaen

Navarra, Castelln, Cantabria, Valladolid,

Ciudad Real, Huelva, Len

Lrida, Cceres, Albacete, Burgos, Salamanca,

Lugo, Orense, La Rioja, lava

Guadalajara, Huesca, Cuenca, Zamora, vila,

Palencia, Segovia, Teruel

Soria

Ceuta, Melilla

11

Distribution of seats according to vote

Seats are assigned according to the DHondt method (highest averages) on the basis of closed party lists (party selects order
of election of candidates).
This approach is used other countries, including Brazil, Denmark, Japan, Netherlands and Portugal.
To be included in the distribution of seats, parties must receive at least 3% of the valid vote (including blank votes).

Example: Valencia (elections 2011)

Valencia had 16 seats assigned to it in the 2011 elections (2 seats plus proportional share of remaining 248)
Under the DHondt method, the total votes are divided by 1, 2, 3, etc. up to the number of seats to be allocated (16).
The 16 seats are then allocated according to the highest ratio of votes to seat (marked in green).
PP were allocated 9 seats, PSOE gained 4 seats and EUPV, Compromis-Q and UPyD were assigned one seat each.

PP
743,604
52.2%

Factor of division

Votes
Share
1
2
3
4
5
6
7
8
9

Source: Afi.

743,604
2
371,802
4 247,868
5
185,901
7
148,721
8
123,934
10 106,229
12 92,951
16 82,623

PSOE
EUPV-EV COMPROMIS-Q
370,499
96,417
85,797
26.0%
6.8%
6.0%
3

370,499
6
185,250
9
123,500
13 92,625
74,100
61,750
52,928
46,312
41,167

11

96,417
48,209
32,139
24,104
19,283
16,070
13,774
12,052
10,713

UPyD
PACMA
84,394
6,381
5.9%
0.4%

14 85,797

15 84,394

42,899
28,599
21,449
17,159
14,300
12,257
10,725
9,533

42,197
28,131
21,099
16,879
14,066
12,056
10,549
9,377

6,381
3,191
2,127
1,595
1,276
1,064
912
798
709

Eb
3,972
0.3%

ERPV
3,648
0.3%

Others
14,159
1.0%

3,972
1,986
1,324
993
794
662
567
497
441

3,648
1,824
1,216
912
730
608
521
456
405

14,159
7,080
4,720
3,540
2,832
2,360
2,023
1,770
1,573
12

Consequences of Spanish electoral system

The distribution of seats tends to favour rural and low populated areas. E.g. in the 2011 elections, 16,066 votes were required to
obtain a seat in sparcely-population Soria, while in Madrid 86,839 votes were necessary.

The system favours majority parties (over-assigns seats relative to proportion of votes). Parties can secure more seats by
having a concentration of the vote in a small number of (relatively populous) regions, instead of widely dispersed. This has
created a bias in favour of nationalist parties.
Party

All of CiUs seats

were a result of
achieving 29.1% of
the vote in Catalonia

6 of Amaiurs 7 seats
were a result of achieving
24.1% of the vote in the
Basque Country

Share of
votes

Share of
seats

PP

44.6%

53.1% (186)

PSOE

28.8%

31.4% (110)

CiU

4.2%

4.6% (16)

IU-LV

6.9%

3.1% (11)

Amaiur

1.4%

2% (7)

UPyD

4.7%

1.4% (5)

PNV

1.3%

1.4% (5)

ERC

1.1%

0.9% (3)

BNG

0.8%

0.6% (2)

CC

0.6%

0.6% (2)

Compromis

0.5%

0.3% (1)

FAC

0.4%

0.3% (1)

GBAI

0.2%

0.3% (1)

The smaller the district, the bigger the advantage for majority parties

Source: Afi.

13

Government formation procedure takes a maximum of two months. Most voted

party usually given first attempt at government formation.

Broadly similar process for formation of regional governments

Article 99. Spanish Constitution
Source: Afi.

14

Regional and municipal elections

15

Elections in Andaluca on 27 March. PSOE retain dominance, Ciudadanos and

Podemos receive close to 1 million votes. Difficulties to form government.
Distribution of vote in 2012 and 2015 Andaluca elections

Distribution of seats in 2012 and 2015 Andaluca elections

2015

2012

PSOEs success in Andalucian elections unlikely to be replicable elsewhere due to PSOE historic dominance in region, personal
popularity of Andalucin leader Daz and lack of preparation time, which reduced new parties preparedness.
Formation of PSOE minority government blocked by PP, Podemos, Ciudadanos and Izquierda Unida: Three failed attempts to
approve PSOE led-minority government. PP and IU refusal to negotiate. Podemos (reduction in senior civil servants, break in relations
with banks responsible for evictions) and Ciudadanos (signing of anti-corruption pact, electoral reform, reduction in fiscal pressure)
only willing to offer support in return for specific demands.
If no agreement reached by 5 July, new elections will be called.
Source: Afi.

16

Regional and municipal elections will provide

insights into post-general election scenarios

Most voted party in 2011 regional elections

Main results of 2011 regional elections:

PP most voted party in 11 of 13 regions voting: only Asturias
and Navarra voted more for other parties.
PP absolute majority government in 8 of 13 regions: PP-led
coalition also in Extremadura and Aragn. Canary Islands,
Navarra and Asturias only regions not governed by PP (excluding
Andaluca, Catalonia and Basque Country on different election
cycle)
Importance of 2015 regional elections:

Governing coalitions following 2011 elections

Impact on governance and reform implementation: regions

account for 34% of total government spending (including health &
education). Regional support is crucial for implementation of
national government reform and consolidation objectives.
First test of vote intention at ballot box: first wide-scale vote
since EP elections. Will provide an indication of how votes might
be distributed at national level but affected by regional
idiosyncrasies (e.g. as was case in Andalucian elections).
Insights into pact scenarios: government formation process
following regional elections may provide insights as to possible
pacts that might be agreed at the national level.
Source: Afi.

17

Surveys point to need for pacts (coalitions or minority governments)

Possible government formation options according to CIS opinion poll non-exhaustive*
Most
voted
party

2011

PP
absolute
majority

PSOE
absolute
majority

PP + Cs

PP + C +
regional

PP +
regional

PP
+PSOE

PSOE +
POD

PSOE +
Cs

PSOE + POD
+ Cs (* + IU)

Madrid

PP

PP

X*

Valencia

PP

PP

Castilla-Len

PP

PP

Extremadura

PP + IU

PSOE

Murcia

PP

PP

Cantabria

PP

PP

Aragn

PP + PAR

PP

CLM

PP

PP

Balearics

PP

PP

Canaries

PSOE+CC

PSOE

Navarra

UPN + PSOE

UPN

La Rioja

PP

PP

Asturias

FORO

PSOE

Viable options

PSOE +
POD +
regional

PSOE +
Cs +
Regional

POD +
regional

X
X
X

X
X
X

X
X

X
?

11

X
1

X
3

PP expected to be most voted party in 9 out of 13 regions, but to retain absolute majority only in Castilla y Len (possibly Murcia)
Coalition/pact between traditional parties (PP & PSOE) is an available option in all but one region (Navarre)
Ciudadanos a necessary (but not always sufficient) coalition partner for PP in up to 9 regions
PSOE reliant on broad left-wing coalitions (Podemos + others) to govern in most regions, except Castilla-La Mancha
Regional parties play a key role in Navarra, Canary Islands, Cantabria and to a lesser extent Valencia & Asturias
Source: Afi, CIS.

* PP and Podemos coalition/pact discounted. In some regions we discount more complex coalition options, if easier and more feasible coalition options are available.

18

Key regions to watch will be Madrid and Valencia (economically important, PP

heartlands) with possible changes in colour of government in various regions
Madrid

Risk to PP hegemony
PP heartland: large
incentive to pact
Traditional parties
tarnished by corruption

2015

Relatively safe for PP: Castilla y Len, Murcia

Moderate risk to PP: Madrid, Valencia, Cantabria, Rioja
High risk to PP: ragon, Extremadura, CLM, Navarra

19.3% of GDP and

14% of population

Wild cards (no clear outcome)

PP heartland

Not forgetting municipalities

Navarra, Aragn

2011

Valencia

PP tarnished by
corruption
9.7% of GDP and 11%
of population
2015

Source: Afi, CIS.

2011

PP on track to hold large cities: PP neck-andneck with Podemos in Madrid, CiU lead
reduced in Barcelona
Intermediate cities (provincial capitals) a key
battleground

19

Three possible scenarios for pacts following regional elections. Trade-off between
obtaining power at regional level and revealing cards ahead of national elections.
1.

Abstention / tacit agreements until general elections

Parties prefer not to reveal cards ahead of general elections

Tacit support (abstention) given to most voted party until general elections
Risk of periods of paralysis in some regions (as is case in Andaluca) affecting short-term fiscal consolidation
Limited read-across to general elections

2.

Pacts/coalitions determined by party leaders

Pacts and coalitions determined by national leaders based on strategic considerations.

Traditional parties evaluate whether willing to work with new parties in order to main control in some regions (PP
with Ciudadanos? PSOE with left wing coalitions?). PP-PSOE coalitions remain unlikely
New parties (Ciudadanos, Podemos) attempt to avoid showing party bias by attaching objective conditionality to
support for other parties.
Potentially significant read-across to post-general election scenarios

3.

Pacts/coalitions determined by regional leaders

Pacts and coalitions formed on ad hoc basis according to regional arithmetic and degree of independence/power
of regional leader vs. national leaders
Possibility of opportunistic agreements
Some read-across to post-general election scenarios but regional power dynamics influence outcomes

Source: Afi.

20

Scenarios for national elections

and policy implications

21

Latest opinion polls point to some signs of stabilisation: PP and PSOE recovering,
Podemos in freefall and Ciudadanos continuing to make inroads
Evolution of estimated vote of main Spanish political
parties (%)

PP and PSOE vote starting to stabilise with modest

signs of recovery

Modest pick-up in support for PP, possibly related to

strengthening economic recovery
Change in fortunes for PSOE related to Andaluca
victory and problems for Podemos

Podemos vote falling sharply, reflecting several

factors

Failed attempt to capture centre-ground, resulting in a

watering down of messages and distinctiveness
Internal disputes and destitution of founding member
Negative read-across from Syriza victory in Greece
Rise of Ciudadanos as alternative vehicle for protest
vote

Ciudadanos consolidates position as fourth party

Source: Afi, various opinion polls.

Successful penetration of centre ground (capture of

dissatisfied PP voters)
Partial displacement of Podemos as change option

22

Podemos attracts voters from left and Ciudadanos from centre-right (PP, UPyD).
Debate has shifted from left towards centre (anti-corruption, social democracy).
Vote intention according to vote recollection in 2011 elections

Podemos
attracting former
PSOE & IU voters
& disenfranchised

Over half of those planning to

vote for Ciudadanos voted for
centre-right parties in 2011

Self-assessment of political disposition of potential voters of each party

Left
Source: Afi, CIS, Metroscopia.

Centre

Right
23

Translation of opinion polls (direct vote intention) into final votes remains
uncertain and will depend on several factors

Direct vote intention and estimated vote (%)

Source: Afi, CIS.

24

Prospect of pact-based government not necessarily bad news for markets. Three
possible scenarios for government formation after the elections.
Formal coalition between centre parties (PP + Cs, PSOE +Cs, PP + PSOE)

Market
impact

+ Policy/reform focussed coalition (possibility of coalition agreement)

+ Consensus environment to address pending issues (e.g. regional model of finance,
Catalonia, political & institutional reform)
+ Reduced influence of nationalist parties
- Slower decision making process (finding consensus), increased fragility

Minority government with ad hoc support (PP+ or PSOE+)

Central
scenarios

+ Will create need for greater consensus building, avoids populist takeover by Podemos
+ Historically proven to be relatively stable (albeit at a price of minority interests)
- Increased difficulty to pass necessary reforms/consolidation, risk of stagnation
- Increased fragility of government

Left-wing coalition/alliance (PSOE + Podemos + IU)

+ PSOE to ensure centre-left focus i.e. no Syriza scenario
+ Potential to offer solutions to social problems and corruption issues
- Risk of reform rollback and challenge to fiscal consolidation
- Possibility of anti-business measures due to Podemos and IU presence

Low-prob
scenarios
Source: Afi.

i.

Absolute majority government surprise (e.g. UK elections): low likelihood due to corruption scandals facing PP &
PSOE, weaker overall economic recovery and reduction in fear scenarios (e.g. Podemos led government)
ii. Populist government: reduction in support for Podemos and move towards centre mean low risks
iii. Second round of elections
25

Despite some progress in introducing reform, significant reforms will be needed

in the next Parliament
Priority Areas

Necessary reforms

Reduce private debt overhang

Speed up judicial proceedings

Introduction of second opportunity law

Eliminate structural deficit

Shift tax base from direct to indirect taxes & harmonisation

Undertake Comprehensive Spending Review

Reform regional finances

Improve dispersion and predictability of financing system

Address solidarity problems and consolidation incentives

Eliminate two-speed job market

Simplify number of contracts, reduce temporary contracts

Improve active labour market policies

Improve productive structure

Product market reforms: professional services legislation,

business simplification, judicial processes

New growth model

Creation of industrial strategy supported

by R&D and education reforms

Source: Afi.

26

Policy proposals of new parties, Ciudadanos and Podemos, likely to have

biggest impact on business as usual approach of traditional parties
Ciudadanos
Labour Market

Fiscal policy

Debt

Regions

Source: Afi, party programmes.

Podemos

Elimination of temporary contracts

Dismissals costs linked to time in job
Portable social security rights

Public spending to boost employment

Direct support plans instead of subsidies
Move towards 35 hour week

Reduction of income tax rates and

elimination of deductions
Reduction of VAT, elimination of superreduced rate

Increased progressiveness of taxes

Reduction in minimum exempt for
inheritance tax
Introduction of top rate luxury goods tax

Second opportunity law for individuals and

self-employed
Mortgage debt limited to value of house

Evaluation of state debt and restructuring of

debt undertaken in bad faith
Simplification of debt restructuring
processes
Mortgage debt limited to value of house

Creation of federal system

Harmonisation of regional taxes

Coordination of taxes across regions

Harmonization of minimum insertion income
across regions
27

Despite different economic philosophies Ciudadanos more liberal, Podemos

more interventionist some possible areas of consensus for new government
Ciudadanos
Productive model

Welfare state

Podemos

Match funding for strategic sectors

Improve tax treatment for venture capital
Creation of technology network

Increase R&D spend at regional level to 2%

of GDP
Focus on energy and transport
infrastructures
Creation of public bank

Creation of Earned Income Tax Credit

Paralysis and reversal of privatisations

Right to access to electricity and gas
Paralysis of evictions

Potential areas of consensus for next government

Source: Afi, party programmes.

Anti-fraud and corruption measures

Simplification of debt restructuring procedures
Greater harmonisation of regional tax differences

28

Catalonia Independence

29

Support from independence has fallen from peak levels recorded last year, reflected
in a reduction in market concern (though Catalonia still pays a risk premium).
Catalan voter preference over status of Catalonia

Spread Catalan government debt and SPGB

Mas calls off formal
consultation plans
Scotland
referendum on
independence

Reasons for fall

in support for
independence
Source: Afi, CEO, Bloomberg.

9-N quasiconsultation

Mas announces plans

for early elections in
September

Public fatigue following consultation

Government refusal to negotiate
Infighting between pro-independence parties
30

Early elections in Catalonia scheduled for 27 September (but not yet formally
called). Polls suggest plans to turn vote into a de facto plebiscite on independence
would give pro-independence parties a slender majority of seats but not votes.
Estimated share of vote in Catalan regional elections

Estimated share of seats in Catalan regional elections

Possibility that Catalan leader, Mas, may reconsider decision to hold early elections on a plebiscitary basis a
final decision will have to be taken in mid-August (40 days before election date)
Source: Afi, CEO.

31

The timeline proposed by the pro-independence parties (ERC + CiU) would see
a formal UDI in March 2017

Nov-Dec: new national government,

possibility to open negotiations

March 2017

27 September

Formal UDI
Vote in favour of
independence in
early elections

i.
ii.
iii.
iv.
v.

Symbolic UDI declaration in Catalan Parliament

New Catalan Constitution to be drawn up (within 10 months)
Creation of Catalan state institutions (Treasury, social sec)
Negotiations with Spain over division of assets
Discussions at international level for recognition as new State

Referendum on
Catalan Constitution

Key uncertainties

Source: Afi.

Threshold for a vote in favour of independence: absolute majority of votes / seats

Position of other parties in pro-independence camp (UDC, CUP, ICV)
Legal validity of using regional elections as a plebiscite for independence
Membership of EU/Eurozone

32

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