Spain Warned It Can’t Hold Up Forever Without Stable Government

  • Economy chief Guindos says Spain may miss 2017 budget deadline
  • Rajoy loses confidence vote as Socialists line up with Podemos

The Spanish economy may have gotten away with one repeat election, but it may not be able to withstand the impact of a third ballot, Acting Economy Minister Luis de Guindos said, after his boss Mariano Rajoy failed in a bid to end the country’s political stalemate.

De Guindos said the eight-month impasse is holding up crucial reforms and the country risks missing an October deadline to submit its 2017 budget to the European Commission for oversight. Without a proper government in place, Spain will only be able to rollover its 2016 spending program without the cuts officials in Brussels are demanding.

Luis de Guindos

Photographer: Angel Navarrete/Bloomberg

“That’s not going to be enough to comply with the targets we’ve agreed on,” he said on Cadena Cope radio Thursday.

Spain has secured a series of extensions from European authorities as Rajoy tries to balance their demands for budget consolidation with his own efforts to shore up support among voters. The country’s budget deficit adjusted for the economic cycle is due to increase for a second straight year in 2016, according to European Union calculations.

While a range of indicators from second-quarter output to consumer confidence have shown the economy’s resilience, Guindos said the momentum “won’t last forever” unless there’s a stable administration with full powers. He also noted that one practical effect of not having a government would be paralysis at the market regulator as its chief’s term ends next month and the caretaker government does not have powers to name a replacement.

Caretaker Prime Minister Rajoy was defeated by 180 votes to 170 in a confidence ballot on Wednesday as his party’s traditional rivals, the Socialists, joined the anti-establishment group Podemos to block his candidacy. Without any indication of a shift in positions, Rajoy is likely to lose a second vote on Friday, where he’d only need a simple majority to secure a second term, shunting the country closer to a third election in December if he’s not able to broker a deal.

“Going to a third election would be torture for Spanish society,” Guindos said. “The Spanish people don’t want to go to the polls again.”

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE