WRAPUP 1-Spain's new leaders feel euro zone heat with Greece and Italy

Sun Nov 20, 2011 8:14pm EST

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* New Spanish leaders must act fast to win invester confidence - analysts

* More political wrangling in Greece casts a pall

* Spain's People's Party looks set for absolute parliamentary majority

By Fiona Ortiz and Lefteris Papadimas

MADRID/ATHENS, Nov 21 (Reuters) - Spain's newly-elected leadership must to act fast to shore up investor confidence, analysts say, after the Socialist government became the fifth in the euro zone to be toppled by the debt crisis.

In Greece, whose financial woes touched off the market nervousness now felt around the world, more political wrangling cast a pall over the new technocrat prime minister's bid to win the nod from European leaders on Monday for bailout funds.

Borrowing costs for both Spain and Italy hit unsustainable levels last week before the European Central Bank stepped in to stabilise the market. On Friday, the euro rose but European shares hit new five-week lows on fears it was a short-term fix.

Spaniards looked set to give the centre-right People's Party (PP) an absolute majority in parliament and a clear mandate for more austerity against a background of soaring unemployment and one of the highest budgetary shortfalls in the region.

"We will stop being part of the problem and will be part of the solution," PP leader Mariano Rajoy said after the vote.

Analysts welcomed the result while making clear they expected Rajoy, who will not be sworn in until December, to move quickly to turn the economy around.

"This could calm markets but until the new government does what it says it is going to do, nothing will change," said Angel Laborda, analyst at Madrid think-tank Funcas.

Nicolas Lopez, head of research at M&G Valores, said the government had to introduce convincing measures. "While these measures are being taken, the ECB will have to buy up bonds as it has been doing to maintain confidence," he said.

In Italy, newly-installed Prime Minister Mario Monti easily won confidence votes in both houses of parliament last week after his predecessor Silvio Berlusconi quit to general relief in European political and financial circles. But he could face a battle to win backing for greater austerity or liberalisation.

Italian newspapers said on Sunday that new budget measures were likely to be unveiled within two weeks, with a property tax abolished by Berlusconi set to return, plus moves to tackle tax evasion and a cut in payroll taxes to lift employment.

GREEK POLITICS

Greek Prime Minister Lucas Papademos will meet EU Commission President Jose Manuel Barroso and Eurogroup head Jean-Claude Juncker on Monday after EU, IMF and European Central Bank representatives held tough talks in Athens.

Fearful of alienating voters, Antonis Samaris, head of Greece's conservative New Democracy, refused to give a written guarantee that he would do whatever it took to meet the terms of a bailout no matter who wins an election expected on Feb. 19.

The leader of the far-right LAOS party said the international lenders would not release the 8 billion dollars Greece needs to avoid default in mid-December without the guarantee.

Euro zone wide planning to improve the region's economic governance and restore market faith in the single currency project is also mired in disagreements.

The details of the European Financial Stability Facility (EFSF), the bloc's rescue fund, are still undecided and the ECB says it will not act as a lender of last resort.

The European Commission will propose much tighter control of budgets on Wednesday and also present a study of three options for joint debt issuance of the 17 countries sharing the euro, but without any conclusions or suggestions which one to chose.

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