Spanish election results hit markets

The surprise surge of a young, left-wing party in Spain's general election has rattled the country's stocks and bonds

 
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Albert Rivera, leader of Ciudadanos, has said he will not support a "grouping of losers"

Onlookers fear for Spain’s political certainty following its surprise election result on December 20. Breaking the two-party norm that has presided over the country for decades, Podemos, a recently formed left-wing party, won 20.6 percent of the vote and 90 seats in the legislature. While the Popular Party (PP), the incumbent regime, finished with only 28.7 percent – far from the majority needed for single party rule.

The centrist Ciudadanos party also did considerably worse than predicted, winning only 14 percent of the vote and 40 seats in the 350-seat Spanish legislature. “This changes the post-election scenarios — a centre-right coalition cannot reach a majority — and injects even greater political uncertainty. This is unlikely to be a positive development for markets”, said Deutsche Bank analysts quoted by the Financial Times.

This changes the post-election scenarios — a centre-right coalition cannot reach a majority

Within a day of the electoral announcement, the country’s bonds and stock plunged; the IBEX 35 index fell by three percent initially in early morning trading, before settling at a 1.8 percent decline. Moreover, 10-year sovereign bond yields increased by 11 percent to 1.8 percent, spreading fears among government debt holders.

Protracted negotiations are expected in the coming months as a PP-Ciudadanos coalition falls short of the majority needed to rule. PP must thus find an additional partner in either anti-austerity Podemos or regional parties that are strongly in favour of Catalan independence. Ciudadanos leader Albert Rivera has already publicly stated his party would not support a PP-Ciudadanos-Podemos government, or a “grouping of losers” as he called it.

If no agreement is found, another election will be held in 2016.