Saturday, March 8, 2008
Spain Votes 2008: Zapatero's election to lose?
Voters in Spain go to the polls this Sunday for a regularly scheduled parliamentary election, to choose members of both houses of the Cortes Generales, the Senate and the Congress of Deputies. In addition, the southern region of Andalusia will hold an election for its autonomic (that is, devolved) Parliament.
The Congress of Deputies - by far the more powerful chamber in the Spanish legislature - is elected by closed party-list, rectified proportional representation (under the D'Hondt or largest average method) in fifty multi-member constituencies, namely the country's provinces. In addition, the autonomous cities of Ceuta and Melilla, located in North Africa, elect one member each by plurality voting. Meanwhile, directly elected Senate members are chosen by the limited voting system in forty-seven peninsular constituencies, ten island constituencies (the islands of the Balearic and Canarian archipelagos), plus Ceuta and Melilla. However, unlike in Congress elections, voters may choose individual candidates in Senate elections; the electoral system is described in further detail in Elections to the Spanish Congress of Deputies.
While the electoral system has changed relatively little since its introduction during Spain's transition to democracy more than thirty years ago - which came after nearly four decades of authoritarian rule under Generalissimo Francisco Franco - the party system has experienced numerous changes since then. However, since 1993 Spanish politics have been dominated by two major parties which have alternated in power: the left-of-center Socialist Party - in full, the Partido Socialista Obrero Español (PSOE; Spanish Socialist Workers' Party) - and the conservative Partido Popular (PP), whose name can be translated as the Popular or People's Party.
Since 1977, PSOE has been by far Spain's major left-wing party, holding power from 1982 to 1996 (under longtime leader Felipe González) and since 2004 under Prime Minister José Luis Rodríguez Zapatero. Meanwhile, PP is the descendant of the Alianza Popular (AP) or Popular Alliance, a right-wing party founded by Manuel Fraga Iribarne, a former minister during the Franco regime. While AP was originally very conservative - it was mainly supported by well-to-do Spaniards who grudgingly accepted the transition to democracy - by 1982 it had emerged as the major right-wing challenger to PSOE, displacing the rapidly disintegrating Union of the Democratic Center (UCD), which had ruled Spain during the early transition years. Nonetheless, AP remained well behind PSOE, and when the party reorganized as the PP in 1989 under the leadership of José María Aznar, it sought to convey a more centrist image. PP made substantial gains in the 1993 general election and finally came to power in 1996, holding office until 2004 with Aznar as head of government. However, in recent years PP, led since 2004 by Mariano Rajoy, a former minister in Aznar's government, has once again lurched to the right.
Their political dominance notwithstanding, more often than not neither PSOE nor PP has commanded an absolute majority in the Congress of Deputies. In such cases, the largest party has invariably opted to form a minority government sustained by agreements with one or more of the various minor parties represented in Congress. Thus, Spain has not had a full-fledged coalition government at the national level in thirty-plus years of democracy. Following the demise of the middle-of-the-road Social Democratic Center (CDS; an UCD offshoot) in 1993, the only nationwide minor party represented in Congress has been the United Left or Izquierda Unida (IU), which brings together the Spanish Communist Party and several like-minded leftist parties. Although IU retained a sizable electoral following as late as 1996, it fared poorly in the 2000 and 2004 general elections.
The fact that there are only three nationwide parties of significance is due in no small measure to the system of rectified proportionality for Congress elections, which features corrective devices in order to contain parliamentary fragmentation. These include the use of the D'Hondt rule for the allocation of constituency seats (which favors the larger parties) and a three percent constituency-level threshold (with blank ballots counted as valid votes), although the latter provision is only relevant in the two largest constituencies - Madrid (35 seats) and Barcelona (31 seats). The remaining provinces return an average of six seats, and the application of the D'Hondt rule in these introduces a sizable de facto threshold, well above the three percent barrier.
Moreover, the application of the largest average method over a large number of mostly small-sized constituencies has a cumulative effect that clearly works to the advantage of the larger parties, and to the detriment of smaller parties with evenly spread support, which usually win few if any seats outside the larger constituencies. This was precisely the case with United Left in the 2004 general election, when it only won seats in the three larger provinces. On top of that, while the allocation of seats among party tickets within constituencies is strictly proportional - as far as the number of available seats and the D'Hondt rule will allow - the distribution of Congress seats among constituencies is not. Every province is guaranteed a minimum of two seats irrespective of population, and as a result it takes considerably fewer votes to win a seat in the sparsely populated and predominantly rural provinces than in the more populated and largely urban provinces, which are under-represented in Congress.
Besides PSOE, PP and IU, Spain has a significant number of regionalist and nationalist parties, which while small on a nationwide scale, have a substantial following in their respective regions. Because votes cast for nationalist parties are concentrated in the regions in which they operate, these can circumvent the limitations of the rectified proportional system in varying degrees.
While the presence of regional nationalist parties is by no means a uniquely Spanish phenomenon (for example, in Great Britain proper there are nationalist parties in Scotland and Wales), some regions in Spain have two or more nationalist parties of significance: this is precisely the case in both Catalonia and the Basque Country, the two regions in which nationalist sentiment - fueled by linguistic differences - runs strongest. Catalonia has three nationalist parties: the liberal Democratic Convergence of Catalonia (CDC) and the Christian Democratic-oriented Democratic Union of Catalonia (UDC), which traditionally run together under the moderate Convergence and Union (CiU) ticket, competing with the more radical Republican Left of Catalonia (ERC). Meanwhile, the Basque Country has two legal nationalist forces - the conservative Basque Nationalist Party (EAJ-PNV) and Basque Solidarity (EA), a 1986 PNV splinter - and the proscribed Batasuna, widely perceived as the political arm of the ETA terrorist group.
Outside Catalonia and the Basque Country, Galicia and the Canary Islands have sizable nationalist parties as well. The Galician Nationalist Bloc (BNG) is staunchly left-wing, while the Canarian Coalition (CC) is distinctly centrist and unusually moderate as nationalist parties go. However, Canarian nationalism is based not on linguistic differences - the islands are Spanish-speaking (albeit with a distinctive dialect that closely resembles that of the Spanish-speaking Caribbean countries) - but on a sense of geographic isolation: the Canary Islands, located off the west coast of Africa, are as far away from mainland Spain as Spain herself is from Germany. In addition, the region was for a long time a centrist stronghold, and many CC leaders originally belonged to one or other of the now-defunct nationwide centrist parties.
Traditionally, statewide center-right parties such as the PP have been considerably weaker in Catalonia and the Basque Country than in other regions of Spain, partly because of the presence of strong, right-of-center nationalist parties such as CiU and PNV, which split the right-wing vote, but largely because conservative parties in Spain have historically favored a centralized state, perceiving Catalan and Basque autonomy (devolution) as a halfway house to independence, and therefore as a threat to the country's unity. Nonetheless, since 1977 Spain's major center-right parties - PP among them - have accepted autonomy for all regions of Spain, albeit with a more limited scope than that envisaged by nationalist parties or the major nationwide leftist parties.
The increasing assertiveness of nationalist parties in recent years has led to the emergence of non-nationalist, center-left parties such as Citizens - the Citizenry Party (C's) and Union, Progress and Democracy (UPyD). While these parties differ little from PP on devolution matters, both are stauchly secularist, and essentially at odds with the PP's conservative social agenda (which calls for, among other things, repeal of the gay marriage law approved under Zapatero's government, despite the fact that opinion polls indicate gay marriage is supported by an overwhelming majority of Spaniards). The Catalan-based C's, which won three seats in the 2006 Catalan Parliament election under the leadership of Albert Rivera (who famously posed nude for the party's campaign poster in that election), is now running in every constituency, although it is expected to have its best result in Barcelona, where the party may win a seat in Congress. Meanwhile, UPyD, led by Rosa Díez, a former Socialist MEP, has focused its efforts in Madrid, where the fledging party could secure a seat as well.
Although Spain's economy has slowed down significantly in the last few months after several years of strong growth, and unemployment is on the rise, the Socialist Party appears likely to prevail in Sunday's vote, in part due to the personal popularity of party leader and Prime Minister Zapatero, who emerged as the clear winner in two very acrimonious pre-election debates with PP leader Rajoy. Most opinion polls forecast a PSOE lead of three to four percentage points over PP, but turnout is expected to play a key role in the election result. Turnout is widely expected to be lower than in 2004 - which would in all likelihood help PP - but Friday's killing of a former Socialist councillor in the Basque city of Mondagrón (apparently carried out by ETA) could influence the outcome of the election.
In fact, should the race turn out to be unexpectedly close, there is no guarantee that the party with the largest number of votes will win the larger number of seats as well, due to the effect of the rectified proportional system's corrective devices. These devices give an otherwise proportional electoral system a quasi-majoritarian twist, particularly (but by no means exclusively) in small constituencies where only the major parties (sometimes including one or two nationalist parties as well) have a realistic chance of attaining parliamentary representation. For example, in the 2004 general election in the Castile-La Mancha province of Ciudad Real, PSOE won three out of five seats (60%) on a narrow 48.1%-to-46.6% vote lead over PP, which won the remaining two seats; a further eleven provinces had similarly close outcomes (three of them with three- or four-way races involving nationalist parties). Thus, a slight vote swing in favor of one major party or the other, repeated across several closely fought constituencies, could bring about a significant change in the distribution of Congress seats.
That said, it appears unlikely PP will be in a position to form a government. Barring an unforeseen turn of events, the center-right party plus its 1996 allies (CiU, PNV, CC) are poised to fall well short of an absolute majority, and from that perspective, Spain's 2008 vote remains Zapatero's election to lose.
Update
The ruling Socialist Party (PSOE) of Prime Minister José Luis Rodríguez Zapatero retained a plurality of Congress seats in Spain's 2008 parliamentary election, defeating the Popular Party (PP) by a relatively narrow but nonetheless clear margin. Both PSOE and PP scored seat gains at the expense of minor parties, which however will continue to hold the balance of power, as the Socialists remain seven seats short of an absolute majority.
Definitive election results, published on the Spanish Official Gazette on April 17, 2008, were as follows:
Spanish Socialist Workers' Party (PSOE) - 11,288,698 votes (43.9%), 169 seats
Popular Party (PP) - 10,277,809 votes (39.9%), 154 seats
Convergence and Union (CiU) - 779,425 votes (3.0%), 10 seats
Basque Nationalist Party (EAJ-PNV) - 306,128 votes (1.2%), 6 seats
Catalan Republican Left (ERC) - 298,139 votes (1.2%), 3 seats
United Left (IU) - 969,871 votes (3.8%), 2 seats
Galician Nationalist Bloc (BNG) - 212,543 votes (0.8%), 2 seats
Canarian Coalition (CC-PNC) - 174,629 votes (0.7%), 2 seats
Union Progress and Democracy (UPyD) - 306,078 votes (1.2%), 1 seat
Navarre Yes (Na-Bai) - 62,398 votes (0.2%), 1 seat
Basque Solidarity (EA) - 50,371 votes (0.2%), no seats
Aragonist Council (ChA) - 38,202 votes (0.1%), no seats
Others - 684,390 votes (2.7%), no seats
Voter turnout stood at 73.8%, slightly down from 75.7% in 2004.
PSOE also prevailed in the Andalusian Parliament election, but the party was returned to power in Seville with a sharply reduced majority.
Some - but by no means all - of the nationalist parties fared badly in the election. Basque Solidarity (EA) and the Aragonist Council (ChA) lost their single seats in Congress, while the Catalan Republican Left (ERC) lost five of the eight mandates it won four years ago; the Basque Nationalist Party (EAJ-PNV) and the Canarian Coalition (CC-PNC) lost ground in the election as well. However, the Galician Nationalist Bloc (BNG) and Navarre Yes (Na-Bai; a coalition of Basque nationalist parties that run separately in the Basque Country) emerged unscathed, as did the Catalan CiU (which picked up an additional seat on election night, but lost it to PP when the expatriate poll was subsequently tallied). In any event, the Socialist Party won handsomely in both Catalonia and the Basque Country, and both victories proved to be decisive in the election outcome.
United Left (IU) also did poorly in the election, losing three of the five seats it won in 2004. The Communist-led alliance may have been tactically squeezed by voters who switched to PSOE to forestall a PP victory (all the more so in light of the quasi-majoritarian workings of Spain's rectified proportional representation system), but regardless of the cause, IU appears to be in a process of gradual yet irreversible decline - not unlike the French Communist Party across the Pyrenees.
However, for the first time in decades a new nationwide party won parliamentary representation: the non-nationalist, left-of-center Union, Progress and Democracy ticket won enough votes in Madrid to elect party leader Rosa Díez as its single member of Congress. At the same time, the similarly oriented Citizens (C's) failed to win any seats.
Meanwhile, PP leader Mariano Rajoy announced his intention to run for re-election as head of the party in an upcoming June congress. Rajoy appears to enjoy widespread (if by no means unanimous) backing, as the party increased both its share of the vote and its number of Congress seats, polling the best second-place showing since the re-establishment of democracy in 1976-77.
That said, Rajoy was still bested by Prime Minister Zapatero, who will continue to preside over a Socialist minority government. But the question is for how long: only PSOE voted to support Zapatero's re-election when the Congress of Deputies reconvened in April, while the minor parties chose to abstain or - in the case of ERC and UPyD - vote against him, along with PP.
Special Feature, The German Economy At A Glance
Welcome to the Global Economy Matters Blog. Below you will find the normal chronological blog posts. But first here is our Monthly Special Feature which in January 2008 focuses on Germany. Here you will find charts which provide background data on the German economy. We hope these will be of some help to the first time reader here, making it easier to contextualise, assess and get to grips with the general argument being presented on the blog. The big question which arose concerning the Germany economy in 2007 was whether or not the new found dynamism in German economic activity constituted some form of remaissance, and formed part of a global decoupling process whereby a sustainable recovery in domestic demand was taking place. Analysts on this blog never really accepted this view. The key question and central enigma associated with the German economy is really why domestic demand should have remained so congenitally weak over such a considerable period of time.
Since this phenomenon is also to be observed in the the two other societes with very high (circa 43) population median ages - Italy and Japan - we postulate that demographics and population ageing processes offer some part of the explanation here.
Basically what we can observe as societies move above the 40 median age mark are a number of stylised facts. Weakness in domestic private consumption would be one of these, absence of consumer credit driven property booms would be another, growing pressure on the national debt as the elderly dependence ratio steadily rises would be another, and growing dependence on export growth for sustaining GDP growth would be the central feature of the whole edifice.
We hope you will find the background data presented here useful in assessing the argument which we are presenting on this blog, which is basically that a key component in the longer term growth stagnation from which Germany is suffering has its roots in the underlying demographics. Basically and in the long run (possibly with a 30 year lag) fertility does matter. Please click on thumbnails for better viewing.

What follows is a very rough and ready attempt to describe in broad brush strokes how the contemporary German economy actually works. First off, and as is well known, German society is ageing, and at the same time the German population has started declining. Not only is Germany's median age rising, the proportion of the population in the key 25-49 age group is now falling.

As can be seen from the chart this crucial age group touched its highpoint in 1997/98. This could be thought of as the moment of maximum capacity for the German economy since it includes the crucial 25 to 40 household-former, first-time-homebuyer group. In terms of credit expansion, it is this group which drives a significant part of internal demand.

The age group also includes another important group, the 35 to 50 years one. This group drives an economy in productive terms, since these are the prime age workers. If you think of a society as a 100 metres sprint athlete, then there is an age when this athlete is at the maximum of his or her running potential, an age after which each time they can only run the 100 metres more slowly.

Well a society is the same in terms of its collective economic potential, without addressing underlying issues either through fertility or immigration, it can only move forward more and more slowly. Consumption becomes flat, and GDP growth - gioven the external dependence - fragile.

Private consumption has hovered pretty close to the 60% mark for many years now, while government consumption - after moving sharply upwards as a total share in the first half of the 1970s has subsequently remained pretty constant, moving around the 19% of GDP mark. The big difference has been in the importance of fixed capital formation (GFCF) which reached from 1975 to 2000hovered around the 22 - 24% of GDP mark.

Prior to 1975 GFCF was at a much higher level, while post 2000 it has dropped substantially And So what we can see is that the year between, say, 1975 and 2000, when GFCF remaind a more or less constant share of GDP, constituted - to use the language of neo-classical economics - the constant growth period of the German domestic economy.The years prior to 1975 were the convergence, or "catch-up" years

And especially the 1960s, after Germany finally broke out of the destruction and devastation of WWII - while the years after 2000 constitute what the neo-classicists would call the "balanced growth period", although as we can see, it isn't very balanced, and there certainly isn't a steady state.
2008 Forecasts: There is a consenus at the present time that the German economy is slowing. Where there is no real consensus is over the rate at which it is slowing and where and when it will settle. It is clear that GDP growth in 2007 will be below the heady 3.1% annual rate achieved in 2006. The OECD last December revised their 2007 German forecast down to 2.6%, and their 2008 one down to 1.8%. The IMF in their October World Economic Outlook forecast growth for 2007 at 2.4%, slowing to 2% in 2008. Morgan Stanley's Elga Bartsch, while optimistic that the German economy will whether the credit crunch better than most (and here she may well be right) is somewhat more sanguine, putting 2008 growth at 1.5%. In general though I rather doubt her overview that "Germany could well be on the way to becoming the new growth locomotive in Europe." and especially her suggestion that "the phase of underperformance in terms of GDP growth, which has plagued Europe’s largest economy for years, is clearly over." Unfortunately, what we are arguing on this blog is that Germany's GDP growth rates since the mid 1990s are not some special kind of "underperformance", but what can be expected from a society with a rapidly rising median age which is increasingly dependent on exports rather than domestic consumption for growth.
The EU commission in it's November 2007 forecast was also convinced that the German economy was now on a "solid growth path", forecasting 2.5% growth for 2007 and 2.1% for 2008.
I personally will be very surprised if we see growth in the region of 2% for the German economy in 2008, and I even consider the 1.8% from the OECD and 1.5% from Morgan Stanley still on the high side given the extent of downside risk. Basically the reasonably favourable depreciation rules which currently apply to German investment have been changed as of 1 January 2008, and we might reasonably expect to see some sort of impact on investment comparable with the negative shock which hit private domestic consumption following the VAT rise on 1 Jan 2007. In addition all the indications suggest that German consumption will continue to be weak in 2008. So if consumer consumption is at best flat, governemnt consumption equally so, and investment and construction weakening, we are simply lefy with export growth, and here the outlook is definitely more negative in 2008 than it was in 2007. The Spanish economy (one important German customer) is visibly wilting by the day, as is the UK (another big customer), but it is to Eastern Europe we must look for the biggest impact on German exports of any correction in 2008. Just one data point should suffice, Germany exports roughly the same value of goods to the Czech Republic (and more to Poland) as it does to China. This means that Geramny is proportionately not that exposed to any slowdown in China, but hugely exposed to any sudden shift in growth and demand in the East of Europe.
So I would say, that on current data, 1% growth in Germany in 2008 look a reasonable estimate at this point, but that this needs to be taken to mean with considerable downside risk. Germany is now tremendously dependent on what happens elsewhere, and until what does actually happen elsewhere becomes clearer it is difficult to be more precise on Germany.
The only apparent bright spot on the horizon is employment, but I am dubious that in the context of Germany's ageing workforce this will work through as some are hoping, as I expain at some considerable length in this post here. My opinion is that Germany will enter recession at some point during 2008, and that we may well have 2 consecutive quarters of negative growth. The continuing high euro will maintain pressure on German exports, and high oil and food prices will maintain pressure on the inflation front, at least in the first half of 2008. The ECB will probably switch stance towards rate reductions at some point, but since, as Elga Bartsch among many others so eloquently argues German internal consumption and investment are not especially dependent on credit conditions, easing from the ECB may not have as much impact as one would hope for.
Key Posts For Understanding The Present Path of the German Economy
Is The German Economy Heading For Recession in 2008?
Employment and Unemployment in Germany January 2008
Germany Economy, What Price the VAT Effect Now!
The German Economy, Employment, Export Shares and Age Structure
Structural Aspects of German Export Dependence
Does NeoClassical Steady State Growth Really Exist?








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