Mariano Rajoy won the biggest parliamentary majority in a Spanish election in almost 30 years and told Spaniards to brace for difficult times as the nation fights to avoid being overwhelmed by the debt crisis.
Rajoy’s People’s Party swept the ruling Socialists from power after eight years, winning 186 of the 350 seats in Parliament, compared with 110 for the ruling party’s candidate Alfredo Perez Rubalcaba. That’s the worst result for the Socialists in more than three decades. Opinion polls in the month before the vote showed the PP winning 184 to 198 seats.
“Hard times lie ahead,” Rajoy told supporters outside the PP’s headquarters in Madrid last night, giving no new details of his plans. “We are going to govern in the most delicate situation Spain has faced in 30 years.”
Rajoy, 56, who said on Friday he hoped Spain wouldn’t need a bailout before he can be sworn in as prime minister in a month, has pledged to slash the budget deficit and regain the nation’s AAA credit rating, without saying how he will do it. He inherits a stagnant economy with a 23 per cent unemployment rate and borrowing costs back at the levels Spain was paying before it joined the euro.
Spain’s 10-year bond yield was unchanged at 6.38 per cent on Monday. It rose as high as 6.78 per cent on Wednesday, the most since the start of the euro, before ending the week at 6.38 per cent and leaving the gap between Spanish and German borrowing costs at 441 basis points. Spain’s main Ibex 35 stock index fell 0.5 per cent to 8,265 points.
“We consider swift implementation of structural and fiscal policies as a necessary but possibly insufficient condition for the Spanish sovereign bond market to stabilise,” Antonio Garcia Pascual, chief southern European economist at Barclays Capital in London, said in an emailed note.
Rajoy pledged after the results last night that Spain would “stop being a problem and become part of the solution again” in Europe, as he called for a “common effort.” “There won’t be miracles. We haven’t promised any,” he said.
Hundreds of supporters gathered at PP headquarters, waving Spanish and party flags as Barry White, Shakira and Carlinhos Brown songs blasted from loudspeakers.
Spain faces a power vacuum of about a month as the new government can’t take over until the second half of December. Spanish law doesn’t allow Parliament to resume any sooner than December 13, with Rajoy’s administration to be chosen in the following week. PP senior members meet later on Monday.
Room for Manoeuvre
“The room for manoeuvre of the new government is very limited,” said Jose Antonio Sanahuja, a professor of international relations at Madrid’s Complutense University. “Rajoy will have no option but to announce a package of extraordinarily tough reforms to convince the markets and his European partners Spain is different from Italy and Greece.”
Even as the PP says it will slash the deficit, create jobs and make life easier for businesses, fallout from the debt crisis may undermine Rajoy’s efforts to bring down bond yields.
“There are forces in motion that are not about which personality or interest group is implementing the various austerity programs,” Marc Chandler, chief currency strategist at Brown Brothers Harriman & Co in New York. “The economies are deteriorating faster than the austerity is being implemented.”
Fighting for Euro
The PP, which shepherded Spain into the single currency in 1999, has campaigned on its economic record, which includes eliminating a seven per cent budget shortfall in the eight years to 2004 and reducing the gap between Spanish and German borrowing costs from 300 basis points to seven. Unemployment fell to 11 per cent from 18 per cent as a construction boom fuelled hiring.
Now seven years after the fall of the PP government that qualified Spain for the single currency, Rajoy will be fighting to remain in the euro. He inherits a deficit of almost seven per cent of gross domestic product and a banking system struggling to find funding and saddled by bad loans from the real-estate boom.
Rajoy has pledged to cut the deficit by a third to 4.4 per cent of GDP next year and finish the “restructuring” of the banking system. His government will also have to crack down on spending in Spain’s autonomous regions, where budget overruns threaten the deficit goal. The PP already controls 11 of the 17 regional governments and won control of most municipal administrations in May. That may make it easier to reorder finances in the regions, which have 133 billion euros ($179 billion) in debt.
Protecting Pensions
Rajoy has said he will reduce “superfluous spending,” without giving details, and hasn’t said how he will overhaul the financial system. He has pledged to maintain the purchasing power of pensions, which accounted for ¤112 billion this year, and said everything else can be trimmed.
For Rajoy, the victory over the Socialists comes after he suffered two defeats to outgoing Prime Minister Jose Luis Rodriguez Zapatero. After former premier Jose Maria Aznar decided not to run again, he chose Rajoy to lead the PP in the 2004 election.
Rajoy was ahead in the polls when, three days before the vote, a terrorist attack on commuter trains in Madrid’s Atocha train station killed 192 people. The bombing triggered a backlash against the PP government, which tried to blame the bombing on Basque terror group ETA, even after an Al Qaeda-linked organisation claimed it carried out the attack to punish the Aznar government for backing the US-led war in Iraq.
Zapatero rode rising employment to a second victory over Rajoy in 2008, but the end of the country’s building boom contributed to its worst recession in 60 years, quickly sapping support for the premier.
Socialists Sink
Zapatero, who alienated traditional Socialist voters by cutting wages and changing labour rules to favour employers, was replaced in the campaign by Rubalcaba, his former deputy. As unemployment continued to climb, Rubalcaba’s pledges to tax banks and the rich weren’t enough to woo back voters.
Still the landslide was due to a collapse in support for the Socialists, rather than a surge in backing for the PP. The PP won 10.8 million votes, up from 10.3 million four years ago. Support for the Socialists plunged to almost 7 million votes, from 11.3 million in 2008. United Left, which includes Communists, won 11 seats, up from two, while Union Progress & Democracy, a party that wants to limit the power of the regions, took five seats, compared with one in the last election.
