* Markets in turmoil despite clear-cut Spanish election
* Spain's People's Party wins absolute parliamentary
* EU's Rehn says crisis hitting core of euro zone
* Greece set to get lifesaving cash injection
By Robin Emmott and Fiona Ortiz
BRUSSELS/MADRID, Nov 22 The euro zone's
debt crisis swept closer to the heart of Europe despite a
clear-cut election victory in Spain for conservatives committed
to austerity, adding to pressure on the European Central Bank to
act more decisively.
Spain's Socialists became the fifth government in the
17-nation currency area to be toppled by the sovereign debt
crisis this year. Portugal, Ireland, Italy and Greece went
before, while Slovakia's cabinet lost a confidence vote last
month and faces a general election in March.
An absolute parliamentary majority for Mariano Rajoy's
centre-right Popular Party brought no respite on financial
markets increasingly alarmed by the absence of an effective
firewall to halt a meltdown on sovereign bond markets.
Rajoy kept investors, and Spaniards, guessing about his
plans to tackle the crisis, saying the constitution will make
him wait until just before Dec. 25 to name an economy minister
and explain how he will get five million people back to work.
The risk premiums on Spanish, Italian, French and Belgian
government bonds rose as investors fled to safe-haven German
Bunds, while European shares fell more than 3 percent
after Moody's warned that France's credit rating faced new
"This crisis is hitting the core of the euro zone. We should
have no illusions about this," European Economic and Monetary
Affairs Commissioner Olli Rehn said.
He defended the European Union executive's advocacy of
austerity policies blamed for choking off growth and jobs.
"One simply cannot build a growth strategy on accumulating
more debt, when the capacity to service the current debt is
questioned by the markets," Rehn told a Brussels seminar. "One
cannot force foreign creditors to lend more money, if they don't
have the confidence to do it."
Greece's new technocrat prime minister, Lucas Papademos, on
his maiden trip to Brussels, won an assurance that euro zone
finance ministers should be in a position to agree at their next
meeting, next Monday, to disburse vital bailout funds to avert
Papademos was expected to meet European Central Bank chief
Mario Draghi on Tuesday evening in Frankfurt.
Borrowing costs for both Spain and Italy hit levels regarded
as unsustainable last week before the European Central Bank
stepped in temporarily to steady the market.
Two newspapers said the ECB's governing council had imposed
a weekly limit of 20 billion euros on purchases of euro zone
government bonds, a figure analysts say prevents it wielding
massive deterrent power in the markets. Germany's central bank
has led resistance to the bond-buying it sees as inflationary.
The latest weekly figures released on Monday showed the
central bank bought nearly 8 billion euros in the week to last
Wednesday, far below that reported limit in a week when Italian
and French spreads hit euro era highs.
Critics say this reluctant, piecemeal approach is
aggravating the situation rather than restoring confidence.
ECB governing council member Ewald Nowotny, regarded as a
dove, told a conference in Vienna that the central bank could
not simply start printing money but would have to discuss its
next response to the crisis.
"What we certainly have to discuss is what is a role for the
ECB in these difficult times, but this is also something we will
discuss in Frankfurt at the appropriate time," he said.
FRENCH RATING RISK
Ratings agency Moody's said a recent rise in interest rates
on French government debt and weaker economic growth prospects
could be negative for France's credit rating.
"Elevated borrowing costs persisting for an extended period
would amplify the fiscal challenges the French government faces
amid a deteriorating growth outlook, with negative credit
implications," Senior Credit Officer Alexander Kockerbeck said
in Moody's Weekly Credit Outlook dated Nov. 21.
France's government spokeswoman insisted on Monday that
Paris would not impose a third package of budget savings,
despite market pressure on its cost of credit.
Talk of a possible break-up of the 12-year-old single
currency has grown among analysts, mostly outside the euro area,
as EU paymaster Germany has rejected most of the widely-touted
solutions to the debt crisis.
The chairman of Goldman Sachs Asset Management, Jim O'Neill,
said the crisis of European economic and monetary union (EMU)
meant "big decisions have to be taken pretty quickly".
"It's not obvious to me that EMU could survive without
Italy," he told a Confederation of British Industry conference.
"It's not obvious to me that Italy can survive with 6-7
percent bond yields, so something's going to have give pretty
quickly. Italian bond yields have got to come down pretty
quickly or EMU will have some severe challenges."
Dutch Finance Minister Jan Kees de Jager, one of Berlin's
closest allies, acknowledged that the euro zone could splinter.
Asked whether a break-up of the euro would cause an economic
depression, he told BNR radio: "This could be a consequence from
the euro zone falling apart, that is correct."
The chief executive of Deutsche Bank, Josef
Ackermann, said Greece leaving the Eurozone would cause
incalculable damage and make it less likely that Greece would
pay its debts.
Spaniards gave the People's Party a clear mandate for more
austerity against a background of 21 percent unemployment and
one of the highest budget shortfalls in the region.
"We will stop being part of the problem and will be part of
the solution," Rajoy said after the vote.
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.