Spain election win demands fast action
Madrid, November 21, 2011
Spanish Prime Minister-elect Mariano Rajoy was under pressure on Monday to give rapid details of his policies to overcome the worst economic crisis for generations as his overwhelming election victory did little to calm the nerves of investors.
Rajoy's conservative People's Party (PP) notched up the biggest election victory in 30 years on Sunday, with angry voters savaging the outgoing Socialists for a crisis that has pushed unemployment in Spain to more than 20 percent, the highest in the European Union.
The Socialists were the fifth euro zone government to be toppled by a debt crisis that now seems out of the control of vulnerable individual countries.
But with little real detail on Rajoy's plans, the spread between yields on Spanish government bonds and safe haven German bunds widened on Monday morning by 20 basis points to 463.
Ten-year yields were higher, at 6.57 percent, creeping closer to the perilous 7 percent level that forced countries like Greece and Portugal to seek bailouts.
Under Spain's long transition process, Rajoy will not take power until around December 20 but he will have little time to bask in the huge victory for his People's Party.
There is pressure for him to calm jittery markets with some word on what are expected to be deep and painful austerity measures. Since his victory he has only said that there will be no miracles to fix the crisis.
However, by late morning there was little sign of any statement and PP headquarters said nothing was planned.
Spaniards are resigned to a battery of measures to resuscitate the economy that could make things worse before they get better and at least initially increase unemployment, with 5 million people already out of work.
Rajoy has so far pointed to labour market and a financial reform as well as sweeping changes in the public sector, but has not given clear policy lines, relying instead on voter anger against the Socialists to propel him into power.
Peter Goves, interest rate strategist at Citi, said markets were waiting to see Rajoy's fiscal plans although he said the real solution to the euro zone crisis lay outside Spain.
"Arguably, this won't make a lot of difference to the euro zone problems. It might influence Spanish spreads but the wider systemic issues will have to solved at a euro zone head level," he said, echoing a widely held view.
Spaniards blame the Socialists for reacting too late to manage a collapsed housing boom which has left the nation sliding towards its second recession in two years.
"There will be no miracles, we haven't promised them, but we have seen in other times that when things are done well, they produce results,” Rajoy, 56, told rapturous supporters in his victory speech on Sunday night.
"Spain's voice must be respected again in Brussels and Frankfurt... We will stop being part of the problem and will be part of the solution," he said.
The PP, formed from other rightist parties in the 1980s after Spain returned to democracy at the end of General Francisco Franco's dictatorship, won the biggest majority for any party in three decades.
It took 186 seats in the 350-seat lower house, according to official results with the entire vote counted.
The Socialists slumped to 111 seats from 169 in the outgoing parliament, their worst showing in 30 years.
Rajoy, a former interior minister, is seen as market friendly and pro-business, although the landslide victory was anticipated for months in opinion polls.
The Spanish Treasury heads back to the markets with debt auctions on Tuesday and Thursday this week, the first key tests of confidence in Rajoy's leadership.
Economic gloom dominated the election campaign, with more than 40 percent of young Spaniards unable to find work and a million people at risk of losing their homes to the banks.
Protests by Spain's "Indignados" or, indignant movement, died down in a mood of resignation before the vote but demonstrators are expected to take to the streets again when Rajoy's measures start to bite, especially since leftist parties also enjoyed a premium from the Socialist rout in Sunday's election.
Many leftist voters are concerned Rajoy will cut back Spain's treasured national health and education systems.
Fed up with the Socialists, they turned to smaller parties or stayed away from the polls and the abstention rate was higher than in the last election in 2008.
The United Left, which includes the former communist party, won 11 seats in the lower house, its best showing since the mid-1990s and way up from the previous legislature when it had only two seats.
Small parties doubled their presence in the lower house of parliament, taking 54 seats compared with 26 in the last legislature, but this will translate into little real power because of the PP's overwhelming majority.
When the Socialists took power in 2004 Spain was riding a construction boom fuelled by cheap interest rates, infrastructure projects and foreign demand for vacation homes on the country's sunny coastlines.
But the government, consumers and companies were engulfed in debt when the building sector collapsed in 2007, leaving the landscape dotted with vacant housing developments, empty airports and underused highways.
"Something's got to change here in Spain, with 5 million people on the dole, this can't go on," said Juan Antonio Fernandez, 60, a jobless Madrid construction worker who switched to the PP from the Socialists. – Reuters