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Spanish Opposition Tells Sanchez Good Times Coming to an End

Charlie Devereux

(Bloomberg) -- Spain’s opposition leaders warned acting Prime Minister Pedro Sanchez that he’s in denial about what they say is an impending economic crisis, in a televised debate ahead of Sunday’s elections.

People’s Party leader Pablo Casado told Sanchez he’s making the same mistake as his Socialist predecessor Jose Luis Rodriguez Zapatero who led Spain into a financial crisis a decade ago.

“Sanchez is doing the same as Zapatero: denying reality and hiding the effects of the crisis to win an election,” Casado said as the others picked up his tune.

Santiago Abascal, leader of the nationalist party Vox, said Spain’s finances are facing a “really dramatic situation” because of the spending by regional governments he wants to abolish. Pablo Iglesias of the anti-austerity Podemos said that an economic slowdown “could become a crisis.”

While Spain’s economy is still doing reasonably well -- the International Monetary Fund forecasts 1.8% growth for next year -- the new lines of attack suggest Sanchez’s opponents have identified a weakness as output slows.

Long a standout among its euro-area peers, domestic tailwinds have started to fade as job creation slows and external uncertainties such as Brexit and trade tensions weigh on the outlook. Data published on Tuesday showed a 3.2% increase in the number of registered unemployed in October, the biggest monthly percentage jump since January 2012.

“Of course Spain is vulnerable to the trade war between the U.S. and China, or to the exit of the U.K. from the EU,” Sanchez said. “But we have solid pillars to the economy, we are growing more than the EU average.”

Spain is heading to its fourth election in as many years as the political class struggles to forge new majorities after the old two-party system was blown up by the financial crisis. Sanchez won the most seats the last time around in April but failed to find a partner to let him govern. Market so far are unconcerned by the gridlock -- Spain’s 10-year bonds are yielding just 0.31%, compared with 1% at the time of the last election.

Catalan Violence

The campaign is taking place in the shadow of a fresh wave of demonstrations in Catalonia. Separatists have taken to the streets after the Supreme Court in Madrid handed down lengthy jail sentences to some of the movement’s leaders over an illegal referendum on independence in 2017.

Pro-independence unions staged strikes that brought Barcelona and other cities to a standstill while some protesters set fire to dumpsters and cars and others clashed violently with police, leaving about 300 injured.

The revival of the Catalan crisis puts Sanchez in an uncomfortable position because he risks losing support in Catalonia if he strikes too hard a line while voters in the rest of Spain may be turned off if he’s too soft. What’s more, the Socialists might need the support of separatist parties to form a majority after the election, so Sanchez can’t afford to alienate them.

As the acting prime minister zig-zagged on the issue, Casado, his main rival for the premiership, tried to force him to clarify his position.

“I want to ask Mr. Sanchez: is Catalonia a nation?” Casado said, brandishing a 2016 interview in which Sanchez argued that Spain is a country made of many nations. “Is Catalonia a nation?” Casado repeated once, twice, three times as Sanchez muttered into his notes.

“That’s outrageous,” Sanchez replied in the end.

Gridlock

Opinion polls published Monday predicted another stalemate in the Nov. 10 election with the Socialists once again winning most seats but falling well short of a majority. The majority of surveys suggest the Socialists would slip from the 123 seats they obtained in April’s election.

Polls show the PP making a comeback from its worst performance ever while Spain’s new nationalist party Vox is likely to be the biggest winner, rising to third biggest party in parliament. Center-right party Ciudadanos is set to shed two-thirds of its seats.

That result would leave both a left-wing alliance led by Sanchez and a potential right-wing coalition some way short of a majority and Spain with still no clear path to a working majority in the legislature.

(Updates with registered unemployed data in sixth paragraph.)

--With assistance from Todd White and Ainhoa Goyeneche.

To contact the reporter on this story: Charlie Devereux in Madrid at cdevereux3@bloomberg.net

To contact the editors responsible for this story: Ben Sills at bsills@bloomberg.net, Flavia Krause-Jackson

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