The hat-trick – three EPP prime ministers struggle in post-bailout elections
So it’s a hat trick – three in a row. First Portugal, then Spain, now Ireland. Three post-bailout countries went to the polls over the past five months.
All were led by prime ministers from the European Peoples Party (EPP), the mainstream conservative block in Europe.
All three emerged from their elections as the biggest party in parliament. None of them could put together a new government. And nor could the opposition (with the heavily qualified exception of Portugal – see below).
Is this another manifestation of “Juncker’s Curse”? Nine years ago the then prime minster of Luxembourg, Jean-Claude Juncker said in an interview with The Economist: “We all know what to do, but we don’t know how to get re-elected once we have done it”.
He was talking then, in pre-crisis times, about structural reform. But it has become one of the most quoted political sayings in European politics as the crisis tore its way through the continents political rulers.
Juncker was once an EPP prime minister himself. Two years ago he was anointed as the EPP’s candidate for president of the European Commission at Dublin’s convention centre at a huge event hosted by Enda Kenny. Now Mr Kenny is a caretaker prime minster, as is one of his guests that day, Mariano Rajoy of Spain.
Portugal went to the polls last 4 October, when EPP prime minister Pedro Passos Coehlo returned at the head of the biggest party, with 89 seats, but was unable to put together a new administration in the 230-seat Parliament (There was a bizarre story of a constitutional “coup” when the President asked the leader of the biggest party to try and form a government, as was customary).
Unable to form an administration, the next biggest party, the Socialists, were asked to have a go.
They had 86 seats. They struck a deal on a programme for government with the Communist Party/Green alliance, which had 17 seats, and a new-ish group, the Left Bloc – which won 19 seats.
Together they put the socialists into power as a minority government backed from the outside by the other two parties. The new government has stressed to its EU partners that they are committed to following EU budget rules, but proposes a different path for the government to follow.
The government programme calls for an unwinding of austerity measures, such as restoring civil service pay levels, reducing extra working hours introduced under the Troika, easing back on income levies and boosting the welfare system. But it has also committed to respecting EU budget rules on debt and deficit reduction.
Because of the 4 October election, the government missed the EU target of publishing draft budgets by 14 October.
And because of the delay in putting together a new government, this year’s budget didn’t go to Brussels until the end of January.
The Commission said the budget would not hit the fiscal targets, but backed off an outright rejection of the budget by asking for additional measures to be legislated in case they were needed – the so called “plan B”.
A contentious budget presented by a minority government clashing with Brussels in the same week that the markets suffered a mini-meltdown over China didn’t look good to bond traders, who treated Portugal as the weakest link in the Euro area chain, and sold off Portuguese sovereign debt.
The borrowing cost – which had dipped as low as 1.5%, went to 4.5% before falling back to around 3.5% now (The yield on Ireland’s 10-year government debt has stayed below 1%).
Last week it was reported that the Communist Party, which backs the government, said it will introduce a bill during the budget approval process in the coming weeks, that will seek to mandate the government to seek a re-negotiation of Portugal’s sovereign debt, which stands at around 129% of GDP (the deficit is 4.2% of GDP, having missed the 3% target by year end. In 2007 its debt/GDP ratio was 68%).
It is not clear if this proposal a) will actually happen, or b) if it will apply to official debt or private bondholders or both. There is not mention of a debt re-negotiation in the programme for government hammed out among the three parties. The budget debate in the Portuguese parliament is set to run until late March.
Across the border in Spain, the key dates are in early March – this week to be specific. On Wednesday the Congress will convene in Madrid to try and elect a government, following an inconclusive election in December.
The outgoing (EPP) ruling party of prime minister Mariano Rajoy returned with 123 seats – making it the biggest in parliament, but well short of the 176 needed for a majority.
Although there has been strong economic growth after a painful (€40bn) bank bailout and budget consolidation, high unemployment (20%) and a seemingly never ending run of corruption stories holed his re-election effort below the waterline.
Their traditional rival, the Socialist Party (PSOE), had their worst election ever, with the combined vote total for the two big beasts of Spanish politics falling below 50% for the first time.
With the Conservatives unable to form a government, the mandate passed after Christmas to the Socialists.
Last week they announced a government programme deal with Ciudadanos (Citizens), a six-year-old centrist political movement that started in Catalonia, but has spread nationwide.
The PSOE/Ciudadanos alliance now has 130 seats, overhauling the conservative PP, but still well short of the 176 needed.
A new left-wing movement Podemos (informally allied to Syriza in Greece), has 65 seats and so could deliver a working majority.
Buts its key demands for government – the deputy prime ministership, a €96bn increase in public spending over the next four years, and a binding referendum on Catalan independence – is seen as too high a price by PSOE.
On Wednesday the Socialists need Podemos to abstain, or the Conservatives to abstain, or both.
Then it could form a minority administration with Ciudadanos, but will have to rely on Podemos votes from outside government.
Observers think this is unlikely, and a second meeting of the Cortez on Saturday will also fail to produce a government.
There will then be another two months of negotiations to see if a new government can be put together.
Last week the acting prime minster Mr Rajoy was inadvertently picked up on a TV microphone saying there would be another general election in June.
In the meantime, polls indicate support for Podemos growing further, possibly to the extent where they could overtake PSOE, while the Conservatives slide further thanks to the ongoing corruption stories (which have also ensnared PSOE).
The yield on Spanish 10-year bonds this morning was 1.57%. Its debt to GDP ratio has risen from 36% in 2007 to 100% now, and its deficit last year was 4.8%.
Now Ireland faces its own inconclusive post-bailout election outcome.
The debt GDP ratio here is now 98% (it was 25% in 2007), unemployment was 9% at the end of December and the budget deficit was around 1.5%.
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