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Spain's Socialists prepare economic stimulus
March 10, 2008 / 11:25 AM / 10 years ago

Spain's Socialists prepare economic stimulus

By Jason Webb and Andrew Hay

MADRID, March 9 (Reuters) - Spain’s governing Socialists on Monday prepared a public works programme to reinvigorate the sagging economy as they sought allies to enable them to govern after Sunday’s election victory.

Prime Minister Jose Luis Rodriguez Zapatero boosted his tally of seats in parliament but once again fell short of an absolute majority, making it likely he would have to negotiate with Catalan nationalists in order to pass legislation.

The Socialists gained five seats to 169 in the 350-seat parliament. The opposition conservative Popular Party also gained seats to reach 153, while smaller left-wing parties and some nationalist parties lost ground.

Sunday’s turnout was a high 75 percent, in an election overshadowed by the assassination of a former Socialist councillor in the Basque Country, blamed on ETA rebels.

Zapatero on Sunday promised to govern for the poor, women and the young, continuing the progressive note of his first term, during which he legalised gay marriage and made divorce easier in the once deeply Roman Catholic country.

But with Spain’s long-booming economy slowing sharply since the global credit crunch bit late last year, Zapatero’s first priority will be to put the lid on unemployment, which rose by 50,000 in February alone to 2.3 million.

"We have the confidence that comes from a budget surplus," said Labour Minister Jesus Caldera, explaining that the government’s strong fiscal position meant it would have little difficulty funding public works programmes.

But, while the surplus is running at 2 percent of gross domestic product, analysts are unsure how effective a public spending drive will be in correcting the long-term economic problems of a country that for years has relied on a construction boom and ballooning private sector debt for growth.

"They know they have to do something quickly, there’s a high sense of urgency. The dark clouds have gathered, the question is how hard it will rain," said Martin Van Vliet, chief economist at ING Amsterdam.



SPENDING FOR GROWTH

The government hopes increased spending will keep economic growth at 3 percent after 3.8 percent expansion last year, but some private economists, worried by high levels of debt in both households and companies, fear it could fall as low as 2 percent. The private debt load is reflected by a current account deficit running at nearly 10 percent of gross domestic product.

"It’s a wise decision to use some of the budget surplus to give a boost to the economy," said Van Vliet.

But he added that spending would do nothing to address Spain’s problems with competitiveness and education. Econoists say it badly needs to make its exports more attractive and encourage inward investment in sectors other than property.

"They’re all focused on giving the economy a boost, a much needed boost, but it shifts focus away from reforms in the context of a huge current account deficit. It’s a worrying longer term risk," he said.

The Barcelona newspaper La Vanguardia reported that Socialist officials had already met representatives of the moderate Catalan nationalist party Convergencia i Unio to talk about a possible deal. CiU, which won about 11 seats according to the latest count figures, declined to comment.

"They (the Socialists) are seven seats away from an absolute majority. They can pick and choose their allies on an ad hoc basis," said Charles Powell, of San Pablo-CEU University.

Zapatero had no permanent alliance with other parties during the previous parliament, although he often relied on United Left and the left-wing Catalan nationalists Esquerra Republicana, who were punished at the polls this time.

CiU’s parliamentary leader Josep Antoni Duran i Lleida said he would wait and see if he got a call from the Socialists.

"They don’t have any options on the left, they can only make deals with the centre. Maybe this parliament will start with one alliance and finish with another, we’ll see," Duran i Lleida told Spanish television.

Talks with CiU are sure to be complicated by bitterness over the decision by the Catalan branch of the Socialist Party to exclude the moderate nationalists from the regional government. CiU would also want a bigger share of tax revenues for the wealthy Catalonia region. (Reporting by Jason Webb and Andrew Hay; Editing by Kevin Liffey)




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