It’s interesting that ahead of the New Year, we have more political turmoil brewing in the eurozone. This time it’s in Spain.
Yesterday’s general election produced a very uncertain result. The ruling Partido Popular won the most seats – but not enough for a full-blown majority. Meanwhile, the opposition Socialists came second, with anti-austerity Podemos third.
The problem is that no politically possible combination of parties can form a majority government. As one pundit told the FT: “The chances that we will have a stable government that can last four years are quite limited”. In fact, Spain could even need to hold a new election first thing next year.
How much does this matter? After all, unlike Greece, Spain’s economy is recovering, and we’re far enough distant from the 2008 crisis now that markets have calmed down. The European Central Bank also remains as a backstop to the entire eurozone mess.
That’s all true. And if the rest of the developed world has been anything to go by, then we’re going to see a lot more money-printing in the eurozone in the future.
However, it does point to the far deeper, more fundamental issues that Europe is going to have to grapple with this year. How can it press on with further integration at a time when individual member countries are struggling to stay intact?
We always point out that Europe is a political project, which is why the economic absurdities inherent in the eurozone have so far been trumped by political will. But what happens when the political picture becomes so fragmented that no one can agree on anything? Perhaps this is the year we find out.
In the last issue of MoneyWeek magazine for the year – out on 24 December – our experts will be discussing the year gone by and what lies ahead for everything from oil to interest rates to bonds, to Europe. Don’t miss it.
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