Spanish Prime Minister Pedro Sanchez announced on Monday that he will dissolve parliament and call a snap election for July 23, following heavy losses for his Socialist party in regional and local elections on Sunday. Alberto Nunez Feijoo's conservative People's Party, which was joined in some places by the far-right Vox, is set to control eight of the 12 regions up for grabs in the weekend ballot, including Madrid and Valencia, which are considered as bellwethers.
Sanchez stated in a televised speech on Monday, "I take personal responsibility for the results and I believe it’s necessary to respond and submit our democratic mandate to the popular will." Whereas Spain's IBEX 35 index advanced as much as 0.8%, Spain's 10-year government bonds extended gains after the announcement, resulting in the yield declining 9 basis points to 3.52% at 11:44 a.m.
Sunday’s vote could pave the way for the People's Party to return to power five years after the Socialists ousted them from government, despite Spain’s economy under Sanchez performing better than expected. Federico Santi, a senior analyst with Eurasia Group said, "The left did very poorly and that means the prospect of another left-wing coalition are a lot slimmer now." The People's Party won 31.5% of municipal votes throughout Spain, rising from 22% in 2019, while the Socialists fell to 28%. Vox more than doubled its votes to 7%.
Sanchez put billions of euros into the economy to withstand households and businesses from rising costs during a surge in inflation. However, voters were not convinced by Sanchez's stewardship of the economy, despite it outperforming most of its euro-area peers. Meanwhile, the Spanish government imposed windfall taxes on energy companies and banks, as well as a wealth tax to assist in offsetting rising costs. Spain has also received over 50% of the €69.6 billion ($74.6 billion) in grants allocated to it from the European Union's pandemic-era recovery fund.
The fragmentation of the political center is the major issue complicating the upcoming general election, making it unlikely for a single party to gain an absolute majority. Feijoo will likely have to form an alliance with the anti-migration Vox party to form a government, while Sanchez may have to rely on regional movements and smaller groups on the left such as Unidas Podemos. Ramon Mateo, director of policy at the BeBartlet consultancy firm in Madrid, stated, "With the political prospects worsening, Sanchez is cutting his losses before the conservatives can take over the regional governments and oppose him in unison. He's going on the offensive- for him, it's now or never."