Spain's economic rescue squad takes power

22nd December 2011, Comments 0 comments

Spain on Thursday swears in a new conservative government, hailed as an economic rescue squad to roll out urgent reforms.

Prime Minister Mariano Rajoy named 13 loyal disciples to his cabinet, with a former executive of the ruined US bank Lehman Brothers, Luis de Guindos, in the key post of economy minister.

He and the rest of the cabinet, with notable backgrounds in economic and European affairs, must spearhead efforts to get five million unemployed back to work and reassure investors that Spain is not a weak link in the eurozone.

"The government team Mariano Rajoy has chosen is consistent with Spain's urgent needs ... employment and the need to generate international confidence in the midst of this dramatic panorama," said Antonio Nunez of IESE business school in Madrid.

De Guindos, 51, was Lehman Brothers' executive chairman for Spain and Portugal from 2006 until its collapse in 2008, which heralded the start of the worst of the global financial crisis.

He "might lack in credibility because of his position as former president of Lehman Brothers Spain," but the former junior economy minister has "ample experience in the government", IESE said in an analysis.

Leading centre-left daily El Pais saw De Guindos as a technocrat in "a government of friends and loyalists" of Rajoy.

Financial daily El Economista said Rajoy was "looking for reliability and experience, counting on a technical team of liberal tendencies" economically.

Economics professor Cristobal Montoro takes charge of the Treasury, notably tasked with helping to tighten spending by Spain's regional authorities to cut the overall deficit, a major concern for financial markets.

With unemployment at 21.5 percent and warnings of a fresh recession looming, Rajoy has vowed to pass rapid budgetary, labour and banking reforms.

He has promised to deepen the spending cuts that have already hit hospitals and schools in some regions and have brought thousands on to the streets in protest.

He also wants Spain to take an active role alongside other countries in efforts to stabilise the eurozone, shaken in recent months by market fears over the debts of certain members.

His new Foreign Minister Jose Manuel Garcia Margallo, 67, is a member of the European Parliament, as was Agriculture Minister Miguel Arias.

Rajoy has said he will slash Spain's deficit by 16.5 billion ($21.7 billion) in 2012, through sweeping cuts, with only pensions escaping the knife.

Rajoy has vowed to stick to Spain's targets to cut the deficit to 4.4 percent of gross domestic product in 2012 and 3.0 percent -- the EU limit -- in 2013.

He acknowledged this week that the country may miss its deficit target of 6.0 percent for this year and warned that if the figure reaches 7.0 percent, the government will have to make a further 10 billion euros in cuts.

As well as Spain's budget deficit, he must also solve its huge unemployment problem and has vowed to clean up its banks.

De Guindos favours the creation of a "bad bank," a state-run structure that would pool the bad property assets weighing down banks since the 2008 housing bubble collapse.

The new cabinet was due to be sworn by King Juan Carlos in later on Thursday and hold its first meeting on Friday.

© 2011 AFP

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