Is there any point to the Spanish Elections?

Spain goes to the polls on Sunday to elect a new government and, yes, my question is facetious. Of course the elections are not pointless; no democratic election ever is. Apart from anything the people will get their chance to pass judgment on the record of Prime Minister Zapatero and his Socialists. Polls point to a big thumbs down and the election of the PP and their leader Mariano Rajoy who has tried and failed to win twice before.

But will it make much difference whatever happens? Spain is so close to the eye of the Eurozone storm that any new government will be powerless against the combined forces of the bond markets and the Eurozone. The PP are talking tough about bank reforms (which will surely send Spanish property prices down further – How the bailout could send Spanish property crashing) and labour market reform but it will be Germany and the ECB that decides Spain’s fate.

Look at the way that Berlusconi was finally forced from power. The Italians are well rid of him but it took Eurozone threats to do the job. It is notable that the new Italian government contains not a single elected minister.

Over in Greece the call for a referendum to get popular support for austerity measures was taken as a “breach of trust” by France and Germany; Papandreou was kicked out and Greece was effectively blackmailed into cancelling the vote.

I don’t subscribe to the theory that the Southern European countries are being drawn into a German super state but they certainly have lost control of their destiny. Either Spain and the others will be rescued by Germany or it will be forced to crash out of the Euro. It’s that simple and Sunday’s vote will not change a thing.

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Zapatero gets the message

If he means what he says (a big if since he is a politician) it seems like the Spanish PM, Jose Zapatero, has finally got the message. At a meeting with business leaders to discuss reforms this week he said all the right things:

Zapatero accepts the need to accelerate reforms

He's talking about reforming pensions by February and restructuring the weakest savings banks by Christmas. In addition he says that regional governments, who account for about half of Spain's public spending, must start reporting their deficit-cutting progress every quarter.

Up until now he has dragged his feet on reforms, mindful of how unpopular they are on the left of his party and indeed with the electorate as a whole who I suspect mostly don't accept that things need to change if Spain is going to survive and compete. Now Zapatero talks about "accelerating reforms to the max" ... "whatever the personal cost". His new-found zeal as a reformer presumably owes its origin to the Irish crisis and the widespread view that Spain could go the same way ("The difference between Spain and Ireland is timing").

Another reason for urgency is the need to restore some credibility ahead of the first 4 months of 2011 when, according to Barclays, Spain and its banks need to raise 70bn€ in the bond markets, which they think will lead it to ask for a bail-out next Spring. Sounds plausible if you think Zapatero' reforms are too little too late, the Spanish banks are in worse shape than they admit and that austerity measures announced so far will push the economy back into recession. In this case now would be a good time to reduce your exposure to the Euro (or even short it if you are feeling brave) because this will be a calamitous bail-out too far for the currency to bear. On the other hand European leaders know this and may have a few tricks up their sleeves to ensure Spain pulls through e.g. I could easily see the ECB printing money to buy Spanish government or bank debt. Whatever happens it's going to be an interesting 2011.

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