NOMURA: Storm Clouds Are Gathering In Spain Again

cloudy storm

Just a quick heads up for your radar.

Nomura’s geopolitical guru flashes a light on Spain, where he has concerns about a corruption scandal, possible social unrest, and early elections.

Storm clouds gathering…

In early February of this year, the Spanish newspaper El País carried allegations that the ruling Partido Popular (PP) had systematically been abusing party finance laws. We wrote as follows in our 5 February 2013 report ‘Italy and Spain: Still in tandem’:

“Slush fund allegations first made in the Spanish newspaper El País, although strongly denied by Prime Minister Mariano Rajoy over the weekend, appear to have caused markets to ask whether the early-year rally in peripherals could be cut short as political tensions in Spain deepen. In consequence, 4 February saw the biggest one-day rise in the yield on the Spanish 10-year bond this year – 23 basis points to 5.44% as investors appeared to look to price in the risk that tensions will deepen still further.… We doubt that this story is likely to disappear quickly. Indeed, political tensions… look like persisting and deepening. Furthermore, as Tobias Buck reports in the 4 February Financial Times: ‘…the scandal has undermined the credibility of the Rajoy government at a time when public trust in key institutions of the state is already in steep decline’. Such sentiment is now being reflected in opinion polls with the government’s approval rating down almost six points since the story first broke to just 24%.”

On 7 July, another newspaper, El Mundo, carried an interview in which former PP treasurer, Luis Bárcenas, who was arrested and detained in late July in connection with the allegations, claimed that the party had systematically broken campaign finance laws for at least 20 years and threatened further revelations.

Writing in the Financial Times on 8 July, Mr Buck commented that this “marked a potentially dramatic turn in the high profile scandal” (although we note that it is a ‘turn’ which has yet to cause any visible reaction in bond markets). That said, Mr Bárcenas is quoted as saying that he is presently unwilling to release all the information he possesses, claiming that: “In the current circumstances, the last thing that Spain needs is this government to fall”.

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