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Spanish prime minister calls snap election after budget fails to pass

Key Points
  • Spain will elect a new government after the Socialist Workers' Party failed to pass its 2019 budget.
  • The vote will be held on the April 28th.
  • The door could now open for a radical right-wing party to take seats in the Spanish Congress.
Spanish Prime Minister Pedro Sanchez attends a debate on the government's 2019 budget during a parliament session in Madrid on February 13, 2019.
PIERRE-PHILIPPE MARCOU | AFP | Getty Images

The government of Spain formally called for a snap general election Friday following its failure to pass its 2019 budget through Congress.

Earlier in the week, the ruling Socialist Workers' Party (PSOE) failed to secure the additional votes it needed from two separatist Catalan parties, the Republican Left of Catalonia (ERC) and the Catalan European Democratic Party (PDeCAT).

With the government paralyzed by a lack of support, Prime Minister Pedro Sanchez of the PSOE called for an election to break the impasse. The vote will be held on the April 28th.

In his televised announcement, Sanchez said he had been left with no choice.

"Between doing nothing and continuing with the budget and calling on Spaniards to have their say, I chose the second. Spain needs to keep advancing, progressing with tolerance, respect, moderation and common sense," Sanchez said in a translation provided by Reuters.

Antonio Lopez-Isturiz, a member of the European Parliament for the center-right People's Party (PP), spoke to CNBC shortly after the announcement.

The Sanchez government is the incumbent government of Spain since June 2018 and Lopez-Isturiz accused the current administration of failing to enact any real reform, other than raising the wages of civil servants.

"This so-called social budget was not the case."

The center-right lawmaker added that he hoped the Spanish people would "come back to the philosophy of the Partido-Popular which is to create jobs for the Spanish people," before adding that one big focus of the upcoming election would be the persistently high level of youth unemployment.

Yield on Spanish sovereign bonds rose before the election announcement. Yield on fixed income debt moves inversely to the asset price.

Budget failure

PSOE's budget for 2019 wanted to slash the deficit but spend some money in certain areas, including regions such as Catalonia. On Tuesday, the country's Finance Minister Maria Jesus Montero said the Catalan parties should accept the deal or risk damaging "Catalans in particular, and all Spaniards in general."

However, both Catalan parties have rejected calls to come to heel on the budget, demanding that any deal would have to include a referendum on independence for the region.

The prospect of a softening from the Catalan parties, who want the region of Catalonia to gain independence from Spain, was always unlikely given the backdrop of a current trial of the leaders of the failed 2017 Catalan independence movement.

Twelve separatist leaders are currently appearing at Madrid's Supreme Court on a number of charges including rebellion and sedition. Jail terms of up to 25 years are possible.

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Spain's fragmented Congress

The center-right People's Party (PP) could see gains in an election and form a deal with right-wing radicals, VOX, which according to polls, has been quickly gaining support.

Further complicating Spain's disjointed Parliament are the current solid levels of support for the left-wing populist party Podemos (We Can) and center-right Ciudadanos (Citizens Party).

In a note Monday, Teneo Intelligence's Deputy Director of Research Antonio Barroso said forming a new Spanish administration with a clear mandate to legislate will prove a challenge.

"Any future government is likely to face a fragmented parliament, which will again complicate the passage of laws and the implementation of big economic policy shifts," said Barroso.