http://www.businessweek.com/news/2011-11-20/spain-may-hand-rajoy-a-landslide-as-crisis-ousts-another-leader.html

Bloomberg News

Spain Votes as Polls Show Crisis Handing Rajoy Landslide

November 20, 2011

Conservative People's Party Leader Mariano Rajoy

Conservative People's Party leader Mariano Rajoy. Photographer: Denis Doyle/Bloomberg

Spaniards may be set to hand opposition leader Mariano Rajoy the biggest majority in almost three decades as the risk of Spain becoming the next nation overwhelmed by Europe’s debt crisis bolsters support for his People’s Party.

Voting continues until 8 p.m. in mainland Spain as polls showed Rajoy may win as many as 198 of the 350 seats in Parliament, the largest majority any Spanish government has secured since 1982. The campaign, focused on the stagnating economy and 23 percent jobless rate, ended on Nov. 18 with borrowing costs near records. That prompted Rajoy, 56, to say he hopes Spain won’t need a bailout before the new government takes over in December.

Voters already bearing the deepest budget cuts in Spain’s three-decade democratic history may be prepared to accept further austerity in exchange for Rajoy’s pledge to create jobs. The ruling Socialists are set to become the fifth government ejected because of the sovereign debt crisis, after Italy and Greece appointed technocratic governments and Ireland and Portugal fired their leaders after they sought bailouts.

“Rajoy will likely implement quick policy changes in an effort to impress markets and his European partners,” said Antonio Barroso, an analyst at Eurasia and a former government pollster in Spain. “A strong PP victory, coupled with the swift policy changes, could send a positive signal to markets.”

Pre-Euro High

By 6 p.m. and amid rain in most of the country, 57 percent of eligible Spaniards had turned out to vote, compared with 61 percent at the same time during the last general election in 2008, the Interior Ministry said on its website. Polling stations close at 8 p.m. in mainland Spain and the first results will be published after 9 p.m. by the ministry. Almost 36 million people are eligible to vote, including 1.48 million living abroad.

Spaniards go to the polls as the country is being forced to pay as much to borrow as it did before joining the euro in 1999. The 10-year bond yield rose as high as 6.78 percent on Nov. 17, with the gap between Spanish and German borrowing costs ending the week at 441 basis points, or 4.41 percentage points.

“I’m sure the PP will take even tougher measures, but maybe that’s what we need,” said Mercedes Gallardo, a 38 year-old bookstore owner, who has moved back to her parent’s house because of the crisis. Gallardo usually votes Socialist and doesn’t plan to vote today, she said in an interview in Madrid.

Support Eroded

The PP, which shepherded Spain into the single currency, has campaigned on its economic record, which includes eliminating a 7 percent budget deficit in the eight years to 2004 and reducing the gap between Spanish and German borrowing costs from 300 basis points to seven. The unemployment rate fell to 11 percent from 18 percent under the PP as a construction boom fueled hiring.

The surge in unemployment since the collapse of that boom in 2008 and spending cuts aimed at staving off contagion from the Greek crisis undermined support for the Socialists. Alfredo Perez Rubalcaba, the former deputy prime minister who is standing after Prime Minister Jose Luis Rodriguez Zapatero decided not to run, has failed to win back traditional supporters even as he pledges new taxes on banks and the rich.

“Nothing will change except public spending will be reduced even more if the PP wins,” Ester Panduro, a 39 year-old accountant, said in an interview in Madrid’s Puerta del Sol, where about 100 people protested against the electoral system yesterday.

‘Absolute Power’

As the campaign drew to a close, Rubalcaba’s strategy focused more on stemming the PP’s advance than victory for the Socialists. He said in an interview on Nov. 18 with El Pais, a traditional Socialist ally, that what is “really worrying is the Spanish right wing taking over with absolute power.”

“Rajoy is coming to power not so much because Spaniards think the PP is the solution to their problems, but because with unemployment over 20 percent, the Socialist base has just collapsed,” said Ken Dubin, a political scientist who teaches at Carlos III University and the IE business school in Madrid.

Rajoy, who has been in politics for 30 years, has lost two general elections as the PP’s candidate. Polls indicated he was set to win the 2004 vote before the bombing of commuter trains in Madrid that killed 192 people. That attack, claimed by a group linked to al-Qaeda, and the PP government’s response to it, helped flip the vote in favor of the Socialists.

Power Vacuum

Most opinion polls show Rajoy with at least a 15 percentage-point lead. Even if he does clinch the majority that polls predict, Spain faces a power vacuum of as long as a month before the new government is sworn in. Spanish law doesn’t allow Parliament to resume any sooner than Dec. 13, with the new government not voted in until the following week. There’s no way of bringing forward that timetable, Jose Blanco, the government’s spokesman and development minister said on Nov. 18.

Asked in an interview on Onda Cero radio the same day if the new government will be able to take over before Spain needs bailout, Rajoy said: “I hope so,” and offered to cooperate with the outgoing government.

The PP says it will cut “superfluous spending,” without giving details, and promises a “restructuring” of the financial system, without saying what this will involve. Rajoy has pledged to maintain the purchasing power of pensions, which accounted for 112 billion euros ($151 billion) in the 2011 budget, and said everything else can be trimmed.

Obligations, Commitments

“Spain wants to be in the euro,” Rajoy said in the same interview. “The euro brings with it obligations and commitments, the first is not to spend what you don’t have. Spain will do its homework, as we already did in 1998.”

While Rajoy and Rubalcaba offer opposing solutions for Spain’s stagnating economy, both are former deputy premiers and education ministers who have also fought the Basque terror group ETA as heads of the Interior Ministry. They both sport gray beards, and are older than Zapatero, who came to power aged 43 in 2004. Rubalcaba, who has a doctorate in chemistry and was a sprinter while at university, served under former Prime Minister Felipe Gonzalez. Rajoy, a civil servant, worked for former Prime Minister Jose Maria Aznar.

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net; 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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