–Rajoy, Promising “No Miracles,” Is Expected To Dish Up More Austerity

PARIS (MNI) – The conservative Popular Party swept to a convincing
victory in Spain’s national elections Sunday, ousting the ruling
Socialists in a landslide that had been foretold in all the opinion
polls.

Spanish media reported that the PP won 186 seats, 10 more than they
needed for an absolute majority. The Socialists took just 110 seats. The
conservative party garnered 10.3 million votes nationwide compared to
6.6 million for the Socialists. Mariano Rajoy, the PP leader, will
become Spain’s next prime minister, replacing the outgoing Socialist
premier Jose Luis Rodriguez Zapatero.

With Spain under renewed attack in financial markets, Rajoy will
have no time to waste. He is widely expected to extend and deepen the
austerity measures implemented by Zapatero.

Even before the election, Rajoy was already said to be working on a
new package of budget cuts, estimated at about E30 billion, according to
some reports.

Spain, not long ago considered one of the “good boys” among the
peripheral EMU countries, has come under intense pressure recently in
financial markets. It had to pay about 7% on 10-year bonds at an auction
last week, which spooked the markets. Along with Italy, it is now on the
front line in the crisis.

Madrid is expected to miss its 6%-of-GDP deficit target this year.
The European Commission forecast last week that the deficit would be
6.6%, and it said Spain would need to implement more deficit cutting
measures.

In addition, Spanish banks are saddled with large portfolios of
non-performing real estate loans, and they will need to raise about E26
billion in fresh capital by mid-2012 in order to comply with a new
recapitalization directive issued by EU leaders at their late October
summit. Some analysts think that number is too low.

Rajoy is likely to face significant social unrest: With
unemployment close to 22% nationwide, and more than double that among
youth, many people in Spain are close to the end of their patience.

In 2010 and earlier this year there was a significant protest
movement, which led to the occupation of squares in almost all of
Spain’s major cities in response to Zapatero’s austerity measures. Rajoy
could generate additional friction because of the generally hostile
reactions he engenders in Spain’s autonomous regions of Cataluna and the
Basque country.

The PP won in almost all of Spain, with the exception of Cataluna,
the Basque country, and Seville in the far south.

“My enemies are unemployment and the crisis, not the left,” Rajoy
said in his first remarks after winning the election, according to
Spain’s daily El Pais. However, in the face of the European financial
crisis, “there will be no miracles,” he warned.

France’s President Nicolas Sarkozy, himself a conservative,
welcomed Rajoy’s victory. But he made clear that he expected the Spanish
premier-elect to implement additional austerity measures in order to
keep financial markets at bay and minimize the risk of contagion in the
debt crisis.

“Together with our partners, it is up to us to provide an efficient
and credible response in order to re-establish stability and growth in
the Eurozone,” Sarkozy wrote in a letter to Rajoy. “We must work in the
direction of reinforced European integration and I know I can count on
you.”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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