Rajoy wins as Spain clings to establishment after Brexit

Bloomberg

Caretaker Prime Minister Mariano Rajoy consolidated his position in Spain’s general election as voters backed away from insurgent political forces in favor of the relative security of the People’s Party.
The outcome of Sunday’s voting confounded exit polls and suggested the electorate had shied away from the anti-establishment party Podemos at the last minute. With the U.K. engulfed by political and economic uncertainty following Thursday’s unprecedented vote to quit the European Union, Spaniards bought into Rajoy’s call not to jeopardize the country’s economic recovery. Spanish bonds surged on Monday.
“Without doubt, Brexit has been the black swan in these elections,” Ivan Redondo, a political consultant who advised Rajoy on his 2008 campaign, said by e-mail. “Since Thursday, we’ve seen pro-establishment voters mobilized.”
Rajoy’s PP won 137 seats in the 350-strong Spanish chamber, an improvement on the 123 he won in December’s election. Rajoy’s traditional rivals, the Socialists, fell to 85 seats from 90 last time out, while anti-establishment group Podemos was unchanged on 71. An exit poll by Sigma Dos had shown Podemos overtaking the Socialists with 93 seats.
Markets reacted positively. The Ibex 35 Index, the country’s benchmark, rose 2.7 percent at 9:34 a.m. in Madrid, rebounding from Friday’s record drop, lead by Bankia SA, with a 13 percent jump. Spain’s 10-year yield dropped below Italy’s for the first time since July, tumbling the most in eight months to 1.50 percent.
Without a proper executive since December’s ballot created a political deadlock, Spain is trying to forge a new political consensus to take the country forward after the trauma of the financial crisis. While the economy has been growing for the past 11 quarters following a five-year slump, unemployment remains above 20 percent — four times the level in the U.K. — and the country’s next leader will also have to tackle the euro region’s second-biggest budget deficit.

Opening Talks
Rajoy’s supporters gathered outside the PP headquarters cheering, singing football songs and shouting “Viva Espana.”
“We have won the elections — we claim the right to govern,” Rajoy told the crowd. “Now it’s about being useful to 100 percent of the Spanish people.”
Rajoy said he’ll start talks with other parties Monday as he tries to turn his election victory into a governing majority. Pro-market party Ciudadanos is the most natural potential partner, though it lost eight seats from December on 32, leaving their combined strength seven short of a majority.
Ciudadanos leader Albert Rivera said he’s ready to discuss a deal, indicating he’ll demand electoral reform as the price of his support and insisting that politicians mustn’t put their personal ambition before the national interest. Before the vote, Rivera said he wouldn’t support Rajoy because of the premier’s alleged ties to a secret party slush fund. Rajoy denies any wrongdoing.

Safe Option
During the campaign, Rajoy stressed his experience in government to argue that he represented a safe pair of hands to sustain the economic recovery. His rivals focused on the low quality of jobs recently created and a youth unemployment rate above 40 percent.
“He played the card of stability and experience and has been rewarded for that,” said Vincenzo Scarpetta, a policy analyst at Open Europe research institute in London.
Spain’s benchmark stock index plunged 12 percent on Friday, the most in almost 30 years, as investors dumped riskier assets after the Brexit vote. As the ballots were being counted across Spain, the selloff continued in Asian markets with the euro and the pound both falling as the yen rallied.
“The U.K. opting out adds a lot of pressure for the parties to agree on a government,” said Carlos Aragones, the chief of staff to former PP Prime Minister Jose Maria Aznar and a candidate for the Senate.

Spanish bonds surge after Rajoy emerges as winner 

Bloomberg

Spanish government bonds jumped, pushing the yield down by the most in eight months, after Acting Prime Minister Mariano Rajoy defied opinion polls to consolidate his position in the country’s general election after Brexit rocked the world’s financial markets last week.
The nation’s 10-year bond yield fell below that of similar-maturity Italian sovereign securities for the first time since July after election results showed the caretaker premier bolstered his position and the electorate shied away from the anti-establishment party Podemos.
Spain’s sovereign securities on Monday may stay volatile amid continued investor concern about British voters’ choice of a Brexit, which sent peripheral bonds diving on Friday and pushed up Spain’s 10-year yield by the most this year. Riskier assets suffered as the decision threw uncertainty onto the political future of Europe, bolstering speculation other nations will move to hold similar referendums.
Rajoy will need to seek talks with competing parties that so far have blocked the path to extending his term at the helm of the euro zone’s fourth biggest economy since inconclusive elections in December.
The 10-year bond yield dropped 13 basis points, or 0.13 percentage point, to 1.50 percent as of 8:29 a.m. in London. The 1.95 percent security due in April 2026 climbed 1.23, or 12.30 euros per 1,000-euro ($1,105) face amount, to 104.10.