Saving Spain: Honeymoon Unlikely for New Prime Minister

By in Madrid

Spain's conservative Popular Party has won an historic election victory. But the incoming prime minister, Mariano Rajoy, will not have much time to savor his success. He will have to impose tough austerity measures to sort out his debt-ridden country's finances. They could lead to massive protests.

Photo Gallery: Landslide Victory in Spain Photos
AFP

Outside the headquarters of the conservative Popular Party in Madrid, supporters enthusiastically waved the Spanish flag and light-blue flags with the party's white logo on Sunday night. But the election winners did not want to be seen celebrating their triumph excessively. Their country, after all, is mired deep in crisis.

PP leader Mariano Rajoy, 56, who is set to be Spain's next prime minister after his party won a convincing victory in Sunday's election, immediately announced a "concerted effort" by all Spaniards to fight the debt crisis. Rajoy, who was twice defeated in previous elections by the Socialist José Luis Rodríguez Zapatero, told his cheering supporters in Madrid that, given the difficult economic situation, "no miracle" could be expected. Spain would have to "win back respect" in Brussels, he added.

Not since the death of dictator Francisco Franco exactly 36 years ago has a Spanish prime minister and his party possessed as much power as Rajoy and the Popular Party does now. Since the municipal and regional elections in May, they control most of the major cities, half of all municipalities and 11 of the country's 17 autonomous communities, as Spain's states are called. And now, the PP has also easily secured an absolute majority in parliament. According to the preliminary results, the PP has won 186 of the total 350 seats in Spain's lower house. The PP got about 44 percent of the vote, compared to the Socialists' 29 percent.

The new strong man in Spain is anything but a charismatic man of action, however. Rajoy, a notary from the northwestern region of Galicia, has a reputation as someone who prefers to wait out problems rather than tackling them. By waiting patiently, he survived the party infighting which followed his election defeats by Zapatero in 2004 and 2008. In his new autobiography titled "In Confidence," written specifically for the campaign, he praised himself as a "totally normal person."

Rajoy first ran for a seat in the Galician parliament at the age of 26. The fact that he joined the PP, which was founded by Fraga Iribarne, a fellow Galician who had been a minister under Franco, had more to do with friendship than deep political conviction. His father, a judge, had dissuaded him from going into politics. Rajoy's way of thinking is thoroughly dominated by his legal background (his three younger siblings also became notaries). He does not like talking about subjects about which he is not well informed. When in doubt or when he is angry, Rajoy prefers not to speak at all -- and certainly not with the press. Rajoy, a tall, friendly man with a gray beard, is married to the economist Elvira Fernández and is the father of two sons. He would prefer to continue to live in a Madrid suburb, but now he will have to move to the prime minister's official residence in the Moncloa Palace.

Rajoy was always the reliable number two behind the prime minister of the boom years, José María Aznar, who was in power from 1996 to 2004. After Rajoy had led the Interior and Education Ministries to Aznar's satisfaction and had acted as government spokesman, his boss appointed him as his designated successor -- in the expectation that the conscientious but boring politician would pose no real competition, allowing Aznar a later comeback. But things have turned out differently.

Height of the Crisis

The plan is for the new parliament to meet for the first time in Madrid on Dec. 13, with King Juan Carlos swearing in Rajoy and his government before Christmas. It remains unclear, however, who the members of the cabinet will be. The taciturn Rajoy has not even named a candidate for the important Economic and Finance Ministry. At the end of the election campaign, he asked the markets to give him "more than half an hour" breathing space. He will not have much time to experiment with approaches to fighting the crisis, though.

The election took place at the high point of the worst economic crisis Spain has seen in decades. Last week, the risk premium on 10-year government bonds -- the difference in interest rates compared to benchmark German bonds -- shot up by almost 500 basis points, with yields hitting almost 7 percent, a level that is considered unsustainable. Since the bursting of the construction bubble three years ago, unemployment has risen to 21.5 percent. Almost half of young people under 25 have no jobs. And the outlook is grim, with further job losses expected next year.

Brussels also no longer believes that Spain can get its budget deficit down to 6 percent in 2011. Last year, it was equal to 9.2 percent of gross domestic product. The outgoing Socialist government had to cut its growth forecast for 2011 to 0.8 percent.

Rajoy has committed himself to reducing the budget deficit to 4.4 percent in 2012. He is impressed by the austerity course of his fellow conservative, German Chancellor Angela Merkel. He made a pact with Zapatero in September to enshrine a so-called debt brake on the German model in the Spanish constitution, which will introduce a limit on the country's structural deficit.

Vague about the Details

Rajoy was deliberately vague about how he wanted to achieve the savings targets, however, in order to avoid deterring any potential voters. He said he wanted to "roll out the red carpet" to entrepreneurs so that they would create jobs. To achieve that, he wanted to first reduce corporate tax, followed by capital gains tax later. But social benefits will be maintained, and pensions are definitely not to be touched.

In other words, Rajoy needs to square the circle if he wants to achieve savings of €17 billion in the 2012 budget. That is what is required in order to reach the deficit target.

The voters have more faith in the conservatives' crisis management and have punished the Socialists, who lost 59 seats. But anyone who believed Rajoy's promises that the country's finances could be sorted out painlessly will experience a rude awakening. The future prime minister has not yet revealed any details, but austerity measures enacted by his Popular Party colleagues in the autonomous communities provide some hints. There, cuts have been made primarily in education and health care. The election manifesto spoke of "public-private collaboration," but the privatization of some basic services seems likely. The bureaucracy too needs to be slimmed down. Rajoy predicted that he would have to spend less on the unemployed, "because fewer people will have the right to receive support."

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