Finance gloom dampens victory party for Spain's right

21st November 2011, Comments 0 comments

After thundering to an historic election victory at the weekend Spain's right collided with harsh financial reality Monday as investors pounded Spanish stocks and debt.

Conservative leader Mariano Rajoy's Popular Party won by its biggest margin ever in Sunday's election after promising to ease Spain's 21.5-percent jobless rate and rescue it from the eurozone debt crisis.

His scorching triumph sparked street celebrations by voters desperate for relief from Spain's economic pain.

But the party did not last long.

Spain's borrowing costs rose as the investors who help finance the eurozone's fourth largest economy day-to-day appeared to take no comfort from Rajoy's victory.

Spanish stocks slumped, too.

Analysts warned that the European Central Bank or international emergency lenders may be the only ones able to settle the crisis of confidence in Spain and Italy, another vulnerable eurozone economy.

The interest rate charged on Spanish 10-year government bonds climbed to 6.500 percent in late morning trade from 6.345 percent at the close on Friday.

The debt risk premium -- the extra interest charged on Spanish bonds compared to safe-haven German debt -- widened to 4.58 percentage points from 4.33 points Friday.

Madrid's IBEX 35 index of leading shares fell by 2.33 percent to 8,116.1 points in mid-morning trading, dragged down notably by shares in big Spanish banks.

Spaniards had turned in huge numbers to the conservatives and their promise of change to fix the stalled economy after more than seven years of Socialist rule.

Rajoy's party won 44.62 percent of the vote and an absolute majority with 186 seats in the 350-seat lower house of parliament in Spain.

The ruling Socialists under their candidate Alfredo Perez Rubalcaba took their hardest beating yet, with just 28.73 percent of the vote and 110 seats.

Investors had already factored in a conservative win, analysts said: now they want to hear details of the bearded 56-year-old Rajoy's economic plan, which he spoke of only in general terms during the campaign.

Rajoy has vowed to make cuts "everywhere", except for pensions, so as to meet Spain's target of cutting the public deficit to 4.4 percent of gross domestic product in 2012 from 9.3 percent last year.

Celebrating his victory on Sunday, he vowed to lead a "battle against the crisis" but warned there would be no "miracles" and the road ahead would be hard.

He will likely be sworn in from December 20, but Spain's press warned that the markets may not wait that long.

The centre-left newspaper El Pais called on the victor to join with outgoing Prime Minister Jose Luis Rodriguez Zapatero to reassure markets about Spain's finances.

"They must make a joint and unequivocal gesture this very Monday, before doubt returns about European sovereign debt, to state convincingly that Spain is in a state to take whatever economic decisions may be necessary," it said.

Zapatero's Socialist government was blamed for reacting too late to the 2008 property market implosion, which combined with a global financial crisis to throw millions out of work.

As his government cut spending to avoid a disastrous loss of confidence by the debt markets, it slashed public sector wages by an average 5.0 percent, froze pensions and raised the retirement age from 65 to 67.

The cuts sparked an angry protest movement dubbed "the indignants".

Private bank Berenberg said there was a two out of three probability that the eurozone debt crisis would escalate with a buyers' strike on Italian debt that would prompt the European Central Bank to act.

"If so, the ECB would eventually have to intervene massively to prevent a cascade of sovereign and bank defaults and preserve the very existence of the euro and the ECB itself," its analysts said in a report.

© 2011 AFP

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