* ‘Credit negative’ says Moody’s *
Spain’s (Baa2 positive) inconclusive parliamentary election has increased political uncertainty and raised doubts about the future government’s ability and willingness to continue with structural reforms and fiscal consolidation, a credit negative, Moody’s Investors Service said in a comment.
Forming a new government is likely to be difficult and a failure to do so would lead to a new round of elections and a prolonged phase of political uncertainty.
"The election outcome is credit negative for Spain," said Dietmar Hornung, author of the comment.
"It ushers in a period of uncertainty that is likely to persist for several weeks. More generally, it creates an element of uncertainty around Spain’s continued structural reforms and fiscal consolidation."
The outcome of Sunday’s elections illustrates Moody’s concerns over the Spanish government’s commitment to its ongoing reform efforts.
Notwithstanding significant progress made, recent years have also seen a sequence of missed fiscal targets, the future likelihood of which will only be increased by an uncertain electoral result. The outcome of the forthcoming negotiations will inform Moody’s assessment of the Spanish government’s creditworthiness and the resolution of the positive outlook.
The outcome has delivered a significant change from the post-Franco PP-PSOE political duopoly and from four years of PP majority government.
The result also confirms the position of regional nationalist parties which support demands for a greater devolution of responsibilities from the central government to the regions. Those parties’ calls for increased autonomy add to the complexity of the political issues facing the next government.
The positive outlook on Spain’s Baa2 government bond rating balances the country’s improving economic and credit fundamentals and reform progress against the uncertainty over future reform impetus.
Spain’s credit metrics — including GDP growth expected to peak at 3.2% in 2015, one of the strongest in the euro area this year, and the maintenance of current account surpluses — reflect the government’s efforts to address the key imbalances in the economy.
