Weekly Risk Outlook

Weekly Risk Outlook

Deadline to form Spanish government hits. Conference presages significant Panama attention. Indiana primary could decide both parties’ nomination. Cameron to speak to House of Commons. UK elections test Labour strength. All in the Weekly Risk Outlook.

Spain’s political class reaches deadline to form government, likely prompting new elections

Today, Spanish Prime Minister Mariano Rajoy will reach the deadline to form a government. If he fails, new elections will be scheduled.

Should the center-right People’s Party (PP) fail to forge a majority with the PSOE, Ciudadanos, or Podemos (highly unlikely), the King will issue a decree (likely tomorrow) calling for new elections. Experts expect new elections will be held on or around June 26.

With minimal polling at this stage, it is difficult to tell which parties will stand to benefit most from new elections. Considering all 4 major parties continue to fail to forge a workable coalition with the other partners, it doesn’t appear as though any have gained a considerable advantage heading into new elections.

However, the ongoing negotiations did raise the profile of PSOE leader Pedro Sanchez as a possible prime minister. Given the poor results for the PSOE in the last elections, it is likely that his party will gain at least some more seats.

Additionally, it is possible that Podemos and Ciudadanos could lose some of the gains they made in the last election; the lack of an institutional party infrastructure, the potential inability to bring disaffected voters back to the ballot box, and their inability to forge a meaningful ideological coalition with either major political party could peel back their gains.

Finally, the PP could stand to benefit from new elections, both due to the persistence of PP supporters in new elections and voter fatigue in long negotiations, and a desire to get a government working again. However, PM Rajoy’s unpopularity, lingering PP corruption allegations, and austerity will likely staunch PP support.


Council of the Americas conference could see significant Panama Papers attention

On Tuesday, Washington, DC will host the 46th Annual Council of the Americas’ conference, with headline speeches by senior U.S. government officials and the President of Panama, Juan Carlos Varela, scheduled.

The major planned themes of the conference include Argentina’s new economic path, Colombia’s peace process, and assessing the broader macroeconomic environment for the Western Hemisphere.

However, the topic of corporate tax havens will likely be discussed by leaders and members, especially considering the Panamanian president’s appearance. A number of countries and territories in the Western Hemisphere, particularly in the Caribbean, have been accused of effectively being tax havens. An EU Commission report last year named Anguilla, Antigua and Barbuda, the Bahamas, Barbados, Belize, Bermuda, Panama, St. Vincent and the Grenadines (and a number of other nations and territories) as being tax havens.

The Panama Papers revelations has significantly heightened global scrutiny on tax havens, and a recent G-20 proposal to reign in such systems may serve as a launching pad for further international negotiations to limit tax avoidance abuses.


Indiana primary could have disproportionate influence for both parties

On Tuesday, the Democratic and Republican parties in Indiana will hold their respective primaries for the presidential nomination.

Similar to last week’s 5 mid-Atlantic states, the front-runners in both parties, former Secretary of State Hillary Clinton and Donald Trump appear to both be doing relatively well in recent polling.

However, Senator Ted Cruz has made a strong and concerted effort to contest Indiana, in the hopes that the state’s state-wide and congressional district-wide winner-take-all systems could strike a serious blow to Donald Trump’s desire to reach the 1257 delegates needed to succeed on the first ballot. Recent polling has placed the two candidates neck-in-neck, and Senator Cruz has gone as close as possible to calling the state a “must win” for his campaign.

Even though Senator Cruz and Governor John Kasich will not be able to gain enough delegates in the remaining states to get majorities for themselves, many commentators believe Senator Cruz stands a solid chance of receiving the nomination if Trump fails on the first ballot. However, should Trump do well enough in Indiana, he could effectively gain the nomination as long as he performs relatively well in California and New Jersey.

On the Democratic side, the state is far less make-or-break, but a loss by Senator Bernie Sanders could remove what hope remains for his campaign to secure a majority of pledged delegates before the 475-delegate powerhouse of California and 126-delegate New Jersey in June.

In addition, Indiana will be voting in the Senate primary to replace retiring Senator Dan Coats.

Although Republicans are favored to hold onto the state (Indiana is fairly conservative, though polling showed Democratic nominee Baron Hill performing near Republican candidate Marlin Stutzman but well behind Todd Young), past mistakes by Republican Senate candidates in recent elections lost them “getable” seats, including Indiana’s other Senate seat (now held by Democrat Joe Donnelly).


Following President Obama’s remarks on Brexit, Cameron will speak to House of Commons liaison committee

On Wednesday, UK Prime Minister David Cameron will continue the string of pro-EU government ministers speaking to House of Commons committees over the past few weeks. Cameron will speak on the political and economic risks of the UK exiting the EU.

The liaison committee, consisting of the heads of Commons committees, will serve as an opportunity for major players in all political parties to push the government’s case to remain in the EU.

However, while the support of more MPs will probably be helpful, the In campaign will need to shift pretty fully to actively courting voters and boosting the turnout of less enthusiastic In supporters (to counter the surge in enthusiasm for the Out campaign).

President Obama’s intervention has received mixed commentary on its effectiveness, but will undoubtedly be used by the In campaign to highlight the potentially geopolitically destabilizing impact of altering Britain’s relationship with the EU.


Local elections across the UK will test Labour Party strength

On Thursday, voters in Scotland, Wales, and Northern Ireland will cast their votes for regional assemblies.

In addition, local councils in England and the London mayor-ship will be up for election. Most of the attention will be focused on the performance of the Labour Party, as it faces a number of tests across the UK.

In Scotland, the collapse of the Labour Party at the national level (where it has lost all but one of its 57 MPs to the Scottish National Party) could see a reduction in support at the Scottish Parliamentary level if Scottish voters view the SNP as effectively the left-leaning party in the region. Should Labour emerge as a rump leftist party in Scotland, opportunities could arise for the Conservative and Liberal Democratic parties to make gains.

In Wales, Labour maintains exactly half of the Assembly seats, followed by the Conservatives and Plaid Cymru, but is expected to lose ground.

English council elections could prove a somewhat useful Brexit metric if decisive gains are made by Euroskeptic political parties.

One area where the Labour Party may perform well is in the mayoral election for London, where Labour’s Sadiq Khan is favored to beat Conservative Zac Goldsmith. Goldsmith, though viewed as a more centrist Conservative MP, has nevertheless come out in favor of Brexit.

The election of another Brexit supporter to replace pro-Brexit mayor Boris Johnson would provide another bullhorn for Brexit campaigners (despite London’s own general aversion to Brexit). Meanwhile, the election of Labour’s Sadiq Khan could help staunch some of the bleeding, both in what are projected to be electoral losses in other parts of the UK, as well as in stemming the rise of Brexit support.

Significant losses by the Labour Party could sap some of the strength of the In campaign, leaving it without local campaign figures to advocate for Britain remaining in the EU.


The GRI Weekly Risk Outlook (WRO) provides analytical foresight on the economic consequences of upcoming political developments. Covering a number of future occurrences across the globe, the WRO presents a series of potential upside/downside risks, shedding light on how political decisions affect economic outcomes.

This Weekly Risk Outlook was written by GRI analyst Brian Daigle.

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