Bloomberg News

Spain’s Rajoy Vows Not to Cut Pensions as PP Extends Poll Lead

September 13, 2011

Sept. 12 (Bloomberg) -- Spain’s opposition leader Mariano Rajoy pledged not to cut pensions, education or health services to shrink the euro region’s third-largest budget deficit as a poll indicated he may win a majority in elections on Nov. 20.

Asked what he will cut if he beats the ruling Socialists in the general election, the People’s Party leader said: “Everything, with the only exception of social policies.”

“I will not cut pensions and I won’t cut health or education services, though I’ll try to make them more efficient,” he told broadcaster Telecinco today in Madrid.

The euro region’s fourth-largest economy is going to the polls four months ahead of schedule as mounting expectations of a Greek default fuel a surge in Spanish borrowing costs. If elected, Rajoy will inherit an unemployment rate of 21 percent, Europe’s highest, and public finances that showed a deficit of 9.2 percent of gross domestic product last year.

Rajoy’s PP would win 44.8 percent of the vote if elections were held now, giving him an outright majority in Parliament, the newspaper El Pais reported today, citing a poll. The Socialists, who have run minority governments since 2004, would win 30.7 percent, according to the poll, which had a margin of error of 3.2 percentage points.

Parliament aims to reconvene on Dec. 14, allowing for the new government to be voted in on Dec. 21 or Dec. 22, Rajoy said. After forming a government, his first task will be to “call in the finance minister and say that within a month, at most, we must take four or five measures to make the economy recover and create jobs,” he said. He gave no details.

Bond Yields

Spain’s 10-year bonds yielded 348 basis points more than German equivalents today, the most since Aug. 5. The European Central Bank started propping up the Spanish bond market on Aug. 8 in an attempt to stem the spread of the sovereign debt crisis.

While the PP doesn’t “want to cheapen firing,” Rajoy said the new government should seek a new type of contract with “appropriate severance pay” to encourage employers to use open-ended rather than temporary contracts. In Spain, 26 percent of workers are on temporary contracts, according to the National Statistics Institute, while workers on open-ended contracts get 33 or 45 days severance pay per year worked. Spain has the highest youth unemployment rate in Europe, at 46 percent.

Rajoy rejected a proposal by Alfredo Perez Rubalcaba, the Socialists’ candidate, to re-introduce a wealth tax, saying it “punishes savers” and amounts to double taxation. Rubalcaba, the former deputy prime minister, is trying to win back voters angered by Prime Minister Jose Luis Rodriguez Zapatero’s austerity measures and woo the so-called “indignant ones,” who have staged nationwide protests since May.

--Editors: Leon Mangasarian, Alan Crawford.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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