27/11/2013 00:00
TW
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Madrid.—The next prime minister, Mariano Rajoy, kept his silence yesterday on his plans to rescue the country from economic disaster despite pressure from anxious Spaniards and impatient investors following his election triumph. The landslide victory of his conservative Partido Popular at the polls on Sunday failed to lift markets, who fear Spain could go the way of other euro zone members in having to resort to an international bail-out. Angry voters punished the outgoing Socialists for a crisis that has pushed unemployment in Spain to more than 20 percent, the highest in the European Union. But with Rajoy not due to take office until December, markets are desperate for details on his strategy. The spread between yields on Spanish government bonds and safe haven German bunds widened by more than 20 b asis points to around 470 yesterday. Ten-year yields were higher, hitting 6.5 8 percent and creeping closer to the perilous 7 percent level that forced Greece , Portugal and Ireland to seek bailouts. “The need for immediate action from the new government is pressing, with Spain's bond yields at punishingly high levels,» IHS Global Insight economist Raj Badiani said in a research note. Spain's second recession in two years is looming. Funcas research foundation cut its growth outlook for next year to a negative 0.5 percent from a positive 1.0 percent, citing the effect of government spending cuts to meet deficit targets. Ordinary Spaniards also worried about just how hard promised austerity measures would hit them. “I think there will be people in the street when they see what they are going to do,” said Jose Antonio Garcia, a 28-year-old left-wing voter.
Change
Rajoy, a 56-year-old former Interior Minister , has indicated he plans labour market and a financial reform s as well as sweeping changes in the public sector, but in the election campaign gave no clear policy lines , relying instead on the Socialists' failings to propel him into power. Since his victory he has only said that there will be no miracles to fix the crisis. “The fact that investors have to wait another month for Mr Rajoy's cabinet to take the reins only adds to the uncertainty,” said Nicholas Spiro of Spiro Sovereign Strategy. However, Jaime Garcia Legaz, an economist at the PP's think-tank, said he expected Rajoy would announce “shock measures” before the formal handover. Miguel Arias Canete, who is tipped for a cabinet post, hinted that Rajoy's team could coordinate with the outgoing Socialists to avoid a hiatus. “When a legal system like the Spanish one allows for such a long transition period of a month and there is huge global financial and economic instability, you need to bypass the strictly legal requirements and coordinate very closely over the measures which need to be taken,” he said. Spaniards are resigned to a battery of reforms 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. The PP won the biggest majority for any party in three decades, taking 186 seats in the 350-seat lower house. But small leftist parties also enjoyed a premium from the Socialist rout, with many voters turning to them rather than the conservatives, who they fear will slash Spain's treasured national health and education systems. Earlier this year tens of thousands of people dubbed “Indignados” (Indignants) occupied town squares across the country in demonstrations against their social and economic plight. The rallies dropped off before the election but anger may well boil over again when Rajoy's measures become clear. “The result is outstanding for the right... but it also reflects huge discontent. I think they will do what they like in parliament but people will be out on the street,” said Madrid taxi driver Tomas Ruiz, 29. The Socialists slumped to 111 seats from 169 in the outgoing parliament, their worst showing in 30 years. Voters blame d the Socialists for reacting too late to a collapsed housing boom which has left the nation sliding towards its seco nd recession in two years . It was the fifth euro zone government to be toppled this year by a debt crisis that now seems out of the control of vulnerable individual countries , with Spain following Greece, Ireland, Portugal and Italy. Peter Goves, interest rate strategist at Citi, said the real solution to the euro zone crisis lay outside Spain. “The wider systemic issues will have to solved at a euro zone head level,” he said, echoing a widely held view. The Spanish Treasury heads back to the markets with debt auctions today and on 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.