By Don Quijones, Spain & Mexico, editor at WOLF STREET.

In Spain, the Eurozone’s fourth largest economy, the stage is set for a grisly finale of the Rajoy Horror Picture Show. In roughly seven or eight months (the exact date is still to be confirmed), Spaniards will vote in general elections that could dramatically reconfigure the country’s political landscape. For the first time in decades, the stranglehold of the two main parties over Spanish politics is under threat.

Spain’s establishment parties, Prime Minister Rajoy’s People’s Party (PP) and Pedro Sanchez’s so-called socialist party (PSOE), are facing sustained pressure from both sides of the political spectrum: two new parties – Pablo Iglesias’ anti-austerity movement Podemos and Albert Rivera’s Catalonia-based center-right grouping Ciutadans (or Cuidadanos in Spanish) – enchant the disenchanted masses. As I reported in November last year, if Spain’s new political forces continue to capture the hearts and minds of the disaffected that now represent a very large minority, if not the majority, they could hammer a deep nail into the country’s two-party system. While winning the elections is an almost mathematical impossibility, either party could become kingmaker, or kingbreaker!

Recent municipal elections in Andalusia, Spain’s most populous region, could offer an interesting foretaste of what’s to come. The PSOE came out on top despite losing a large number of seats, followed by the PP in second place with its worst ever electoral performance in the region. Podemos rounded out the podium with 15% of the seats, and Ciutadans came in fourth with 9%.

No party came even close to achieving an absolute majority. For the PSOE to continue governing the region, it will need the support of at least one of the other three parties. For the moment no such lifeline has been offered. And while Podemos remains the PSOE’s most natural partner, the new party has set make-or-break conditions that the PSOE seems loath to accept, including a purge of its most scandal-tainted representatives from the region.

If similar results were to occur at the national level, it would almost certainly spell the end of the Rajoy Horror Picture Show. Just as in Andalusia, the outcome would be a hung parliament or a relatively weak coalition government — either of which would be preferable to the current state of affairs.

Oh, The Horror!

After riding a tidal wave of public anger to landslide victory in the 2011 elections, Rajoy has come as close to absolute power as any political leader (a term I use in the loosest possible sense) could hope in an ostensibly democratic country. Rather than using that power wisely or productively, Rajoy’s government has thoroughly abused it, levering the absolute majority it has enjoyed in parliament for five main ends:

• To insulate itself from the investigation of myriad political funding and banking scandals;
• To preserve its own privileges;
• To push through deeply unpopular austerity measures, including unprecedented tax hikes;
• To serve the interests of the business and financial elite, either by changing laws or by granting taxpayer funded bailouts (see above);
• And finally, as public anger begins to blossom, to resurrect the ghosts of Francoist repression.

Once the horror show is finally over, the legacy that Rajoy leaves behind will be one of heightened social and political division, economic and political repression, widespread unemployment and poverty, and endemic corruption. Without its comfortable absolute majority, his government would have imploded long ago. Indeed, in any self-respecting, semi-functional democracy (which unfortunately excludes a growing number of countries these days), the government would have been forced to stand down with the very first revelations of systemic, party-wide corruption.

Instead, Rajoy’s government, by far the most corrupt of Spain’s comparatively short democratic history, is able — with a straight face — to launch a new anti-corruption bill aimed at “regenerating” the country’s democracy. Among the bill’s provisions is one that bans rich individuals and companies from donating funds to Spain’s political parties. Yet in what can only be described as a gaping loophole, the very same individuals and companies are allowed by the same law to donate as much as they want to the parties’ foundations.

A Phantom Recovery

Meanwhile the government congratulates itself on saving the economy. Who cares if more than 50% of Spanish youth – the country’s supposed long-term hope – are without work? Those that do have jobs are lucky if they last more than six months; many less fortunate folk get trapped on the endless carousel of internships institutionalized by Rajoy’s labor reforms (read: No Country for Young Men). As for the country’s children, one in three live in extreme poverty or at risk of social exclusion.

Perhaps the most worrying aspect of the Spanish economy’s “recovery” (read: remission) is the explosive rate of debt creation. Between 2011, when Rajoy took over, and 2014 Spanish public debt grew from 69.2% of GDP to 97%; in other words, by almost half. And this despite the fact that the same government has raided 40% of funds from the nation’s pension reserves and begun including the proceeds of crime and prostitution in its GDP calculations.

Spain’s external debt – one of the primary causes of its initial financial collapse – is once again rising at an alarming rate after a brief dip between 2012 and 2013. According to El País, at €1.7 trillion (161.7% of GDP) Spain boasts the world’s second largest external debt in absolute terms (behind the U.S. of course) and the largest in relative terms.

In other words, even after suffering the worst financial crisis in living memory, Spain continues to repeat the same old mistakes. As the purse strings are loosened consumption of foreign-produced goods once again rises and Spanish corporations’ debt-fuelled M&A binges are back on the front pages of the financial press – almost all of it funded, of course, by foreign creditors.

As long as the faith of those creditors in Spain’s phantom recovery holds strong and conditions remain relatively stable elsewhere (especially in Latin America, where Spanish firms are heavily exposed), there shouldn’t be too much trouble ahead – at least not in the short term. But what if the European economy’s slowdown deepens?

Just as important, what if political instability on the domestic front begins to rise? What if, say, Spain’s richest province, Catalonia, were to hold new elections aimed at cementing the region’s separatist ambitions (as is scheduled to happen on September 27 this year)? Or if Spain’s next general elections returned no clear government? What if both of the two political newcomers (Podemos and Ciutadans) chose not to sully their clean image by joining forces with one of the two establishment parties? Naturally, every effort would be made by the establishment to bring them into line, but what if that failed?

If the solution is a coalition government between the deeply unpopular PP and PSOE — a possibility that has already been raised by a number of senior figures from both parties — the deeply disenfranchised and disaffected public might not react with apathy, but with rage.

Cleary, a great deal lies at stake in Spain’s forthcoming elections. The prospect of heightened uncertainty is unlikely to be welcomed in Brussels. Given how much turbulence has been generated by the recent elections in smallish Greece, just imagine what could happen if political instability were to suddenly rise in the euro zone’s fourth largest economy.

As such, while the Rajoy Horror Picture Show may be coming to a welcome end soon, its climax could still be difficult to stomach, and not just for Spain. By Don Quijones, Raging Bull-Shit.

Banking mayhem spreads to Madrid and tax haven Andorra. Read…  Rich Man’s Bank Hit by Bank Run, Collapse, “Bail-In”

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