Market negative as Spain tilts to the right

By Ciaran Giles

Associated Press

Published: Monday, Nov. 21 2011 4:00 a.m. MST

Supporters of conservative Popular Party wave party and spanish flag next to their party headquarter as they celebrate the first results in the national election polls Madrid, Spain, Sunday, Nov. 20, 2011.

Emilio Morenatti, Associated Press

MADRID — Spain's conservative Popular Party on Monday began tackling the gigantic task of lifting the country out of its worst economic crisis in decades, following an overwhelming and historic victory in the general election.

With the vote count completed, the Popular Party won 186 seats in the 350-seats lower chamber of Parliament in Sunday's election compared with 154 in the last legislature. The Socialists plummeted from 169 seats to 110, their worst performance ever.

"There won't be any miracles. We never promised any," said triumphant Popular Party leader Mariano Rajoy, 56, in his victory speech. "But as we have said before, when things are done properly, the results come in."

The promised change in political direction failed to immediately lift financial markets, with Madrid's key Ibex index down nearly 2 percent in early trading.

Spain's key borrowing rate for 10-year bonds on the secondary market started a second week edging toward 6.5 percent, close to levels where other eurozone countries such as Greece, Ireland and Portugal had to request huge bailouts from the European Union and the International Monetary Fund.

A 7 percent rate is considered unsustainable over the long term.

"We have to do all in our power to recover confidence in our country, to recover credibility in the Spanish economy," Popular Party No. 2 Maria Delores Cospedal told Spanish National Television after markets opened.

"We have to make it clear that the Spanish economy knows how to meet its commitments.

Rajoy's party won most seats in 45 of the country's 52 provinces. The result, together with a clean sweep in municipal and regional elections in May, left it in its strongest position ever. It also meant that unlike the outgoing Socialist government, the Popular Party — or PP as it is commonly referred to — will not have to rely on support from any other political party to implement its policies.

Curiously, the PP only edged up from 10.2 million to 10.8 million votes, while the Socialists' vote plummeted from 11.1 million in 2008 to 6.9 million. That was to the benefit of smaller parties such as the United Left, which saw its seat numbers shoot from two in 2008 to 11 this year.

It was the third time in as many weeks that Europe's debt crisis has led to a change in government. Financially troubled Greece and Italy have also seen their governments fall.

Spain has the eurozone's highest jobless rate, at 21.5 percent — almost 5 million people out of work — and the country holds a center-stage spot in Europe's debt crisis saga.

"We stand before one of those crossroads that will determine the future of our country, not just in the next few years but for decades," said Rajoy, who lost in his two previous electoral bids to run Spain.

"For me, there will be no enemies but unemployment, the deficit, excessive debt, economic stagnation and anything else that keeps our country in these critical circumstances."

Losing Socialist candidate Alfredo Perez Rubalcaba called on outgoing prime minister and party leader Jose Luis Rodriguez Zapatero to call a special party congress to decide on the future. He did not say if he intended continuing as opposition leader.

Zapatero, who held office for two terms, did not run for re-election. His government's perceived mishandling of the economy over the past three years is blamed for the resounding defeat.

"It's curious because the Socialist Party has lost about 5 million votes and there are 5 million unemployed people," said Economics Professor Jose Ramon Pin of the IESE school.

Rajoy has given few hints of how he will tackle the jobless nightmare and has only promised tax cuts for small and medium-sized companies that make up more than 90 percent of all firms in Spain.

He faces the towering task of restoring investor confidence and lowering Spain's soaring borrowing costs with deficit-reducing measures, while preventing an already moribund economy from heading into a double-dip recession. The country only just climbed out of one last year that was prompted by the bursting of a real estate bubble.

At the same time, Rajoy has pledged to protect the welfare state and educational system.

Deputies elected Sunday are to take their seats Dec. 13 and Rajoy is expected to form the new government shortly after.

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