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Spain Must Aim for Finland’s Cost of Borrowing, PP’s Nadal Says

October 26, 2011

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Oct. 26 (Bloomberg) -- Spain’s People’s Party will aim to get borrowing costs on a par with Finland’s if it wins next month’s election and can wield “strong power” at all levels of government, the party’s economy secretary said.

“This is the golden opportunity to make those reforms economic analysts and policy makers have said we should make,” Alvaro Nadal said in an interview in Madrid. “In our whole democratic history, no political party will have had such strong power at regional, local and presumably” the central government level.

With polls showing the PP will win its biggest ever majority in the Nov. 20 vote, the opposition party led by Mariano Rajoy is set to control both the national government and 11 out of 17 regions. The incoming administration would seek to woo investors, keep Europe’s debt crisis at bay and stem a surge in borrowing costs as it tackles the euro region’s third-largest budget deficit, Nadal said.

“I don’t see why we shouldn’t have something similar to Finland or to Austria,” Nadal said. “It just means going back to the path we followed when we did our homework.”

Ten-year Spanish yields are 348 basis points higher than German bunds of similar maturity, down from a euro-era high of 418 basis points on Aug. 5 and an average of 15 basis points in the first decade of monetary union. That compares with a spread of 49 basis points for Finland.

Deficit Goal

The PP may win 45.4 percent of the vote, giving it a majority in Parliament, against 30.1 percent for the Socialists, according to a poll published on Oct. 23 by El Pais newspaper. Leader Mariano Rajoy said Sept. 15 that if victorious he will stick to the government’s 4.4 percent deficit goal for next year, and pledged a stricter budget law, spending limits for the regions, and tax breaks to encourage companies to hire workers and become more competitive.

“Anyone who thinks we are in a ‘Catch 22’ situation is wrong,” said Nadal, rejecting the risk that cuts could prompt a recession, and citing Ireland as an example of a country returning to growth following austerity.

Nadal pledged to negotiate with the regions on which public services are “basic” or need to be cut back. He also said that savings can be achieved through avoiding overlaps.

“For example, the regions have 200 representations abroad which amount to a 400 million euro-a-year expense,” Nadal said.

Growth Outlook

Nadal wouldn’t be drawn on his outlook for growth, which the government says may miss a 1.3 percent target in 2011. Quarterly economic expansion will remain at levels similar to the April-June period for the rest of 2011, Prime Minister Jose Luis Rodriguez Zapatero said on Sept. 14.

The PP will seek to bolster growth by enhanced structural reforms, which would include enabling companies to modify wage- bargaining rules through “verbal agreements” rather than the written accords required by current legislation, Nadal said.

The PP is confident it can “turn the wave of confidence” in Spain’s favor by offering the markets “a little good surprise” with better-than-expected economic growth building on such reforms, Nadal said. “The markets won’t take any more PowerPoint presentations.”

--Editors: Craig Stirling, Eddie Buckle

To contact the reporters on this story: Angeline Benoit in Madrid at; Emma Ross-Thomas in Madrid at

To contact the editor responsible for this story: Craig Stirling at

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