Spain heads to the polls on 29 November after Prime Minister Sánchez called for early elections this Monday. Current polls indicate a government led by the PP, although it will likely depend on Vox to govern. While the elections may create some short-term volatility, we believe that a shift towards the centre-right would ultimately be positive for both the markets and the banks, as it would reflect a more business-friendly political agenda, greater support for private investment, and the possibility of bank tax reform.
All eyes are on 29 November. On Monday, the President of the Government, Pedro Sánchez, called for early general elections for 29 November, advancing elections that were initially scheduled for 2027. Although the announcement may have surprised some, the outcome seemed increasingly inevitable. Over the past year, Sánchez's minority government has progressively lost the support of several key political allies, leaving it at a standstill, unable to secure sufficient backing for important legislative initiatives. The most recent case occurred last week when the government failed to get Congress to approve a housing bill. That setback, combined with nationwide protests over housing affordability, seems to have convinced the President of the Government to seek a new mandate from voters. The decision to call for early elections now may reflect the conviction that it is unlikely that the PSOE will find itself in a stronger political position in the coming months than it has today, making it preferable to hold elections sooner rather than wait until the originally scheduled date.
What do the polls indicate? The latest polls place the centre-right Popular Party (PP) firmly in the lead with approximately 33% of voting intention, followed by the PSOE, currently in government, with 26%, and Vox, the far-right party, with 19%. Although the outcome remains uncertain, it seems that the most likely option is a government led by the PP. However, as things stand today, the PP would have to form a coalition with Vox. Therefore, the key question for investors is not only whether the right will come to power, but also what political concessions may be necessary to ensure a stable government.
Housing and immigration will shape the campaign. We have previously written about housing affordability as one of the most pressing issues in Spain. Housing policy is likely to become a key dividing line in the campaign. The PSOE continues to advocate for tenant protections, rent controls, and a greater role for the State in the real estate market, while the PP argues that the affordability crisis is primarily due to supply and advocates for streamlining the granting of permits, increasing land availability, and offering greater incentives for private investment in residential construction. The outcome could have significant implications for housing supply, construction activity, and ultimately, credit growth in Spain.
Immigration is also expected to be a key dividing line between the left and the right. Spain's relatively liberal immigration policies have been a key driver of demographic growth, job creation, and ultimately, the country's strong economic performance in recent years. While the PP supports stricter controls on illegal immigration and more rigorous border management, it still generally backs legal immigration to address labour shortages. Vox, for its part, advocates for a significantly more restrictive immigration policy, favouring a selective approach based on skills and tougher measures to curb irregular migration.
What could a shift to the right mean for Spanish banks? While early elections could cause short-term volatility in the Spanish stock market, we believe that a centre-right government would likely be viewed positively by the markets in the medium term for several reasons.
Firstly, the PP has consistently championed a more business-friendly political agenda, which includes a reduction in corporate taxation and measures aimed at stimulating private investment. Spain continues to lag behind several comparable European countries in terms of gross fixed capital formation as a percentage of GDP, and a more conducive environment for investment could help boost business activity, company creation, and demand for credit.
Secondly, the banking sector remains subject to a special tax on extraordinary profits that is set to expire in 2027. Any government in power at that time would have to actively renew or replace that measure. Although, in our view, a complete repeal of the tax seems unlikely, we believe there are increasing arguments for its structure and scope to be reviewed under a more market-friendly government. Relatively speaking, this would be especially beneficial for the larger credit institutions. CaixaBank, for example, pays the equivalent of approximately 10% of its annual profits in the special tax on banking entities.
Thirdly, the Spanish State still holds an 18% stake in CaixaBank, a legacy of the Bankia bailout. As investment approaches the profitability threshold, a future government might be more inclined to accelerate the sale of the remaining stake. This measure could become increasingly likely if the new government seeks additional fiscal resources to fund increased defense spending in Spain.