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Edition August 23, 2016 - Crédit Agricole S.A.
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  • Edition August 23, 2016

    Spain: A government would not mean the end of political uncertainty

    In spite of a renewed extension of the deadline to correct the deficit, full compliance with the Stability and Growth Pact is still at risk given the current political deadlock. Until a consensus about constitutional, geographical and fiscal reforms is reached, political uncertainty will linger and weigh on fiscal metrics. Sustained nominal growth and exceptionally favourable financing conditions should nonetheless allow the fiscal deficit to decrease gradually.

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  • Contents:

    - Macroeconomics: resilient growth, but deceleration expected
    - Politics: uncertainty to last as long as the secessionist issue lingers
    - Public finances: ambitious fiscal adjustment still required in 2017-18

  • Extract:

    On the back of a statement from PSOE and C's officials claiming that avoiding a third round of elections remains a major objective, our baseline scenario relies on the eventual abstention of PSOE, to allow a minority PP-led government, probably supported by C's. In spite of a busy electoral and fiscal schedule, this could take some time and not materialise in the first vote of investiture, since the PSOE could bring its support to a PP-led government on the condition of Rajoy's resignation. Although this is not our baseline, renewed failure would imply that no government would be formed before new elections, which would be held on 25 December.
    More generally, whatever government is elected (including the minority one in our baseline scenario), it will be weak and could potentially be brought down, making more difficult the implementation of the new fiscal adjustment required by the European Commission.

  • Spain: an ambitious fiscal adjustment still required in 2017-18

    Spain reduced its public deficit by 0.9ppt of GDP in 2015 (to 5.1%) versus a reduction of 1.8ppt of GDP required by the European Commission. The latter judged that no effective action has been taken due to a declining structural deficit since 2014. No fine was finally adopted, but Spain is still required to correct its structural balance 0.7 ppt of GDP by 2018.

    Spain: an ambitious fiscal adjustment still required in 2017-18
  • Associative topics : Economics | Europe

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