November 18, 2011 / 11:06 AM / 6 years ago

REFILE-Spain's Rajoy to boost business after voters dump Socialists

* Centre-right People’s Party expected to win big

* Voters angry over the economy

* Likely new prime minister, Rajoy, pledges swift action

By Fiona Ortiz

MADRID, Nov 18 (Reuters) - Spain’s likely new leader, centre-rightist Mariano Rajoy, pledged on Friday to restore confidence to the troubled economy and boost business after a parliamentary election in which voters are set to throw out the Socialist government.

Opinion polls ahead of Sunday’s election show the People’s Party, led by Rajoy, has a double digit lead over the Socialists, widely seen by Spaniards as having mishandled the response to the mounting euro zone debt crisis.

Spain will become the latest precarious euro zone country to replace its leadership, following Greece, Ireland, Italy and Portugal.

Economic woes have dominated the campaign, with more than one in five workers out of a job, a recession looming and government borrowing costs soaring to levels that forced other euro zone countries to resort to international bail-out funds.

Rajoy, a cautious former interior minister, will not be sworn in until around Dec. 20. But before that he is expected to try to calm financial markets by laying out the details of how he will shrink the public deficit and reform the economy to make it more competitive in the medium term.

“The worst thing is the doubts hanging over Spain, the lack of confidence. My fundamental objective is to provide that confidence,” Rajoy said on Friday morning on Onda Cero.

He will name economy heavyweights to his cabinet and immediately implement tax cuts for small companies that hire.

“We need a shock plan for entrepreneurs,” he said.

“There are going to be specific measures from the start for entrepreneurs and there is going to be a clear message from the government that we’re counting on them, with the help of the government, to steer us out of this crisis by creating employment.”

Rajoy will have little time to act. Spain sold a 10-year government bond on Thursday with a yield of almost 7 percent. That high a borrowing cost has forced other countries into seeking international aid.

However, investor concerns over European government debt have shifted to Italy and France, which means that unless the euro common currency area comes up with a big picture solution, Rajoy may not be able to save Spain from a fiscal meltdown.

Austerity measures have provoked violent protests in Italy and Greece. Demonstrators have also taken to the streets in Spain although events have generally been peaceful.

On Thursday night, thousands of teachers and students marched in Madrid and other cities to protest against job and budget cuts in public education.


Prime Minister Jose Luis Rodriguez Zapatero announced earlier this year he would not run for a third term as his approval ratings sank in tandem with employment.

The Socialists chose veteran politician Alfredo Perez Rubalcaba as their leader for the campaign, but he has struggled to differentiate himself from Zapatero, since he served in his cabinet for years, most recently as his deputy.

Rubalcaba spent the last week of the campaign trying to get out the Socialist vote, not to win, but to prevent the PP taking an absolute majority in Parliament.

“I‘m worried that the right takes over with absolute power,” he said in an interview published on Friday in El Pais newspaper.

Spain’s economic trouble dates to after it joined the euro in 1999 and a flood of cheap credit led to a housing and building glut. When the property market crashed in 2007 the government, companies and consumers all found themselves over their heads in debt.

At first Zapatero tried to spend his way out of the economic crisis but he reversed tactics and drastically cut spending after the euro zone crisis claimed Greece as its first victim in 2010.

Spanish austerity measures, along with bail-outs and forced recapitalization of banks, so far have been successful in keeping the country from following Portugal and Ireland into financial rescues.

But they also aggravated unemployment. In 1.4 million households no one has a formal job, and consumer groups say a million homeowners are at risk of having their property seized by the bank.

“In this situation you’ve got to vote for a change of government to see if they can turn the situation around. In almost every Spanish family there are people in trouble,” said Manolo, 61, a retired driving instructor standing outside an unemployment office in Madrid. Inside, his daughter, an out-of-work social worker, lined up for benefits.

In May this year young Spaniards fed up with rescues for the banks but no future for themselves, took to the streets in the “Indignados” (or Indignant) movement, which inspired the global Occupy Wall Street protests.

The Indignados urged voters to turn their backs on both of the main parties but they did not call big marches before Sunday’s parliamentary election. However, protests could start up again soon if Rajoy’s spending cuts bite into public health and education, or pensions.

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