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Early Election Call in Spain Unnerves Markets

Spain’s government called early elections for November 20 on Friday, putting the country's economy, which has already come under speculative attack by bond investors, back in the spotlight.

Spain
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Spain

The ongoing debt crisis in the United States has had markets shift attention away from the euro zone periphery more recently.

Spain needs to pass an austerity budget for 2012, and political uncertainty in the lead up to an election could see it come under attack once again.

Borrowing costs have risen sharply over the past few months amid fears that a Greek default would badly affect the country.

The news pushed Spanish shares as well as the euro lower on Friday.

Nevertheless, early elections should not come as a surprise, David Lea, Analyst for Western Europe at Control Risks told CNBC.com.

“When (Socialist candidate) Alfredo Rubalcaba quit government that was earlier than expected for an election in March, so it looked like people were planning for it,” he said.

He added Prime Minister Zapatero was in a weak position in parliament and that it was going to be difficult for him to pass a very austere 2012 budget.

Lea believes markets had already factored in early elections, and expected no more than a short-term reaction.

“The outlook it not tragic. It is not worse than it was,” he said.