INSIGHT: Spain’s chems fear political crisis could cloud stellar economic run

Source: ICIS News

2018/05/31

LONDON (ICIS)--Spain’s Prime Minister is to face a vote of no-confidence on Friday, potentially forcing him to leave office, as the chemical industry watches with concern how the political troubles could cloud a stellar economic performance in the last two years, according to industry participants.

Both the Spanish chemical trade group FEIQUE and the largest chemical trade union Comisiones Obreras (CCOO) said to ICIS this week that a prolongation of the political crisis could create economic uncertainty, in turn affecting one of the manufacturing sectors within Spain which has most rapidly recovered after the financial crisis.

“Considering the healthy growth rates the chemical industry has achieved in the past three years, it would be a disaster if the political crisis spread to the economy. We need a prompt resolution to the crisis,” said the head of chemicals at CCOO, Daniel Martinez.

The trigger for the crisis was the ruling by Spain’s High Court on 24 May which sentenced dozens of members in the conservative Partido Popular (PP) currently in government.

According to the ruling, they profited from illegal commissions from corporates during their time in office nationally, regionally and locally, since the late-1990s to well into the 2010s, in exchange for the awarding of contracts with public institutions.

Moreover, the PP itself was also accused of profiting from a slush fund used to fund electoral campaigns.

While Spain’s Prime Minister Mariano Rajoy was not formally accused of wrongdoing, he has been the PP’s leader since 2004 and the ruling made clear that it would have been very difficult for him not to know anything about the practises happening within his party.

Soon after High Court’s ruling, the largest opposition party, the socialists of PSOE, filed a no-confidence vote motion to be debated during Thursday and voted on Friday.

However, the devil is in the numbers. After the 2016 general election delivered a hung parliament, Rajoy has been governing in a minority government as PP only got 137 seats in a 350-strong parliament.

The cabinet has sporadically been supported by the centre-right, newly created Citizens party (32 seats), who has the Catalan crisis and a fight against corruption as its main raisons d’etre.

The PSOE (85 seats) faces an uphill battle to obtain the 176 votes it would need to defeat Rajoy in Friday’s vote.

His leader and potential Prime Minister, Pedro Sanchez (pictured), will need to get the support of the far-left, newly created Podemos (71 seats) plus a bunch of regional and nationalist parties who have already showed their support for the motion.

Sanchez justified the move on the untenable position of the Prime Minister’s party, and promising to form a caretaker government which would call for elections before the year-end.

“[We are doing this to] return to political and institutional normality, regenerate democratic life, and set in motion a social agenda that would attend to urgent social issues,” he said.

The national crisis goes parallel to that in the northeastern region of Catalonia, where the central government still holds direct rule after an inconclusive election in December, which was preceded by vote on independence not recognised by the state.

The political woes in Spain are added to those of eurozone peer Italy, where after months of talks a government has not been formed and new elections could be called as early as July.

Bourses across the region have felt the pinch this week, while the risk premium for Spanish and Italian Treasury bonds has risen slightly, although still far from the worse days of the sovereign debt crisis started in Greece in 2011.

In Spain, a strong domestic recovery has been combined with the global recovery, pushing chemicals sales up 7% in 2017, year on year, also helped in part by higher selling prices.

CCOO's Martinez also confirmed this week that chemical employment levels have now reached their pre-crisis peak (around 198,000 workers), which places chemicals as one of the largest manufacturing sectors in the country.

According to trade group FEIQUE, chemicals already account for 12.8% of Spain’s manufacturing GDP, having accumulated growth of 27% since the crisis.

“I think the no-confidence vote will succeed, but the more important thing is that the new Prime Minister keeps his promise of calling an election within months – that way we may avoid the economy taking a hit from the political crisis,” said Martinez.

The trade union representative added that it is paramount for the chemical industry to keep the growth that is supporting more and secure employment – for instance, 90% of chemical workers have permanent employment contracts, a luxury in the eyes of many Spaniards working in sectors like services, construction or tourism.

FEIQUE’s director general, Juan Antonio Labat, said earlier this week that the vote had no prospects to succeed, although as every vote counts in such a tight scenario, the outcome will not be known until the vote on Friday.

For instance, by Thursday afternoon the motion’s outcome was in the hands of a small party (five seats) from the Basque Country seeking guarantees for financing in the region already given by the current government led by Rajoy (pictured).

The socialist prime ministerial candidate said on Thursday he would respect the current budget, potentially paving the way for him to be sworn in.

That scenario, a technical government led by a social democrat with little popular support like Sanchez, would be counterproductive for the economy, according to FEIQUE’s Labat.

“If he governs, he’ll be getting ready for the next election and will implement social measures with a high cost to the public sector, borrowing more and increasing debt, and that is a problem because Spain needs to continue reducing its debt and keep its borrowing costs low,” he said.

Everyone seems to agree new elections are needed, however. The High Court’s ruling was demolishing for PP, and after seven years in office Rajoy’s traditional luck seems to be turning.

While Citizens are leading the polls, picking up former conservative, middle class and urban votes which used to go to the PP, the party’s stance in the motion has placed it together with, admittedly, the most corrupt party currently in the Spanish political spectrum, as confirmed by last week’s ruling.

Not a good prospect for an anti-corruption party.

On the left, both Sanchez and Podemos’ leader Pablo Iglesias have been embroiled in internal battles and lack popular support.

Sanchez’s own voters are not convinced about his ability to govern, according to the polls, while Iglesias’ personalist style still keeps his followers united and mobilised, but his reach stops there.

Unfazed by the inability of its politicians to resolve the politics, corporates and consumers are going their own way and keep the economy powering ahead.

On Thursday, the European statistical agency Eurostat said Spain’s unemployment rate stood April at 15.9%, still a painful reality but far from the 25% high reached in 2011.

The Organisation for Economic Co-operation and Development (OCDE), which gathers 37 industrialised countries, upgraded its GDP growth forecast for Spain for this year (from 2.3% to 2.8%) and next (2.1% to 2.4%), even when it downgraded expectations for other EU economies.

Who said crisis?

Pictured above: Tarragona's port in northeast Spain, home to a large chemical park
Picture sources: Port of Tarragona, PSOE, PP

By Jonathan Lopez