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Anti-Austerity Forces in Portugal and Spain

Anti-austerity forces in Portugal and Spain represent a threat to Germany and European unity.

Yesterday, the leftist alliance defeated legislation in parliament that resulted in the end of Prime Minister Coelho after years increased taxes and spending cuts.  On the Spanish side of the Iberian Peninsula, the courts in Spain legally blocked the independence movement of Catalonia.

Both events are a result of austerity measures imposed by the Europeans (i.e. Germany).

It seems that in Spain, this has benefitted parties that will keep Spain together and has hurt the far-left party run by Podemos (who favors Spain to stay in but would allow a referendum by the Catalans).

In Portugal, the left does not want to leave the Euro.  They want more pro-growth policies.  I am not sure they can have their cake and eat it too by reducing debt and growing the economy.

For sure political risk has increased, but I think this is short term and it will not lead to another Greek scenario. For one the situation in both Portugal and Spain is not as dire as in Greece.  In addition, Spain has had economic growth this year.

Let’s not forget that we are in 2015, thus the situation in Europe is more stable.  Thus, I think the market reaction to the news was correct. It was rather muted.