Right storms towards win in crisis-hit Spain

Spain’s right storms towards a landslide win in Sunday elections, carried by popular anger over an economic slump and a debt crisis that has toppled a string of eurozone leaders.

Street protests and a debt market tempest chased the ruling Socialists up to the last moment before the vote, which polls show the opposition Popular Party leader Mariano Rajoy winning by a mile.

Though considered uncharismatic even by many of his supporters, the 56-year-old Rajoy has galvanised support by promising a break from the past to fix the economy and cut a 21.5% unemployment rate.

“The eve of change,” proclaimed the front page of the conservative daily ABC below a picture of a smiling Rajoy surrounded by young Popular Party supporters.

Rajoy has given few details of his austerity plans but analysts say Sunday’s winner must quickly impose reforms and cut costs to reassure world markets about Spain’s determination to repay its debts.

Spain’s turn
Spain’s risk premium — the extra interest rate investors demand over safe-haven German debt — shot to a euro-era high of more than 500 basis points in the days ahead of the vote.

“The campaign closes with Spain cornered by the debt crisis,” warned the front page of left-leaning daily El Pais.

Similar market pressure led to the fall of governments in other fragile economies in the eurozone from Ireland and Portugal to Greece and Italy.

Now, the polls say, it is Spain’s turn.

But the new government will have to act fast to avoid invoking the wrath of the markets again.

Cuts ‘everywhere’
“If the markets think the new government is not going to act with the necessary determination, they will raise the risk premium further,” said Daniel Pingarron, analyst at trading house IG Markets.

Indeed, Rajoy has vowed to make cuts “everywhere”, except for pensions, so as to meet Spain’s target of cutting the public deficit to 4.4% of gross domestic product in 2012 from 9.3% last year.

“We are going to comply with our deficit obligations,” Rajoy told Onda Cero on Friday.

Prime Minister Jose Luis Rodriguez Zapatero’s government is widely blamed for reacting too slowly to the 2008 property bubble collapse, which threw millions of people out of work.

His government enacted austerity measures from last year that bled support, including cutting public sector wages by an average 5%, freezing pensions and raising the retirement age from 65 to 67.

Protest
A nationwide protest movement erupted in May to vent anger over the high jobless rate and corrupt politicians, accusing the authorities of favouring big business and banks over ordinary people.

On Friday night, about 500 of the “indignant” activists rallied in Madrid’s centre.

About 50 members of the movement gathered to discuss the elections in the central Puerta del Sol square on Saturday, a day officially devoted to reflection and in which political campaigning is banned.

The “indignants” mounted a similar protest before local elections in May, in which the Socialists were soundly defeated.

This year Zapatero (51) has bowed out of the fight after two terms and nearly eight years in office.

Crushing victory
The Socialists’ new standard bearer, 60-year-old Alfredo Perez Rubalcaba, has warned voters that the right will cut health and education.

But latest polls show Rajoy, who lost the last two general elections, with a lead of 15 percentage points — enough for a crushing victory and an absolute majority in parliament that would give him a free hand to reform.

Whoever wins, and whatever action they take, some analysts say the answer to Spain’s problems lies with the European Union.

Barclays Capital warned in a report on Friday that Spain will likely need the European Central Bank to step up its support even if a new Popular Party government moves quickly to enact reforms.

“Another round of labour market reforms, banking sector restructuring and enhanced fiscal consolidation are the likely priorities for the new government,” it said.

“Those policies would undoubtedly be welcomed by markets, yet may not be enough to stabilise the Spanish sovereign. Ultimately, we think it likely that the ECB will need to step up its support.” — AFP

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Daniel Silva
Daniel Silva
#1 New York Times Bestselling Author, husband of @jamiegangel, father of twins, friend of Gabriel Allon — The New Girl
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