Ahead of election, Spains next prime minister leaves everyone guessing

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Usually when voters go to the polls they have an idea about competing politicians policies, and only a vague idea about which of them is going to win. But when Spaniards vote in early elections in one months time, they will know, almost for sure, who will win, though theyve got only the faintest clue as to what that might mean.

Mariano Rajoy, leader of the opposition Popular Party, is set to put two election defeats behind him on November 20 and become Spains next prime minister. But his all-but-guaranteed victory opinion polls suggest the PP will win around 190 seats in the 350-seat parliament, its largest ever majority has little to do with him.

Instead, it has much more to do with a three-year economic crisis, an intractable unemployment disasterand escalating worries about Spains debt and public account deficits problems, compounded, if not induced in the eyes of many, by the economic mismanagement of the current Socialist administration of Prime Minister Jos Luis Rodrguez Zapatero.

Those issues, not his own political competence, will propel Rajoy to power, so voters might be forgiven for asking what the centre-right politician plans to do about them. Obviously more spending cuts are on the cards, but where, what and how much? Rajoy, a 56-year-old former deputy prime minister, has said he wouldnt like to cut pensions and has even pledged tax breaks for small businesses, without going into details. Similarly, he has promised a true bank restructuring, but hasnt said what that would entail.

Admittedly, the PP has taken the lead on some economic issues, spearheading, for example, the controversial reform, agreed with the Socialists last month, to put a constitutional golden cap on public spending. But when it comes to what Rajoy will do after he all-but-certainly wins the election, no one seems to know. Instead of saying anything now and risk losing votes from part of the electorate, he is keeping his cards close to his chest: he is letting the Socialists win the election for him, and effectively seeking a blank cheque to do whatever he deems necessary after he takes office just before Christmas.

It seems likely that Rajoy may follow in the footsteps of Britains David Cameron, taking much more drastic measures than his predecessor to cut spending and balance the budget. After all, he will inherit a deficit that was the third-largest in the euro zone last year, a jobless rate of 21 percent and a banking industry struggling with surging borrowing costs. Currently, Spain is paying around twice what it costs Germany to borrow for a decade despite intervention by the European Central Bank to prop up the Spanish bond market.

Last week, Standard & Poor’s downgraded Spain’s credit rating by a notch to AA-minus, a week after its rival Fitch Ratings sliced the rating by two notches to the same AA-minus level. Both agencies judged the outlook to be “negative,” meaning there is a risk of more cuts ahead. Moody’s Investors Service has followed suit, also downgrading Spains credit rating.

All three give similar reasons: feeble growth, bad finances in the regional governments, a banking sector yet to recover from the 2008 property bubble collapse, as well as massive private debt held by households and businesses.

After letting its public accounts slide into a deficit equal to 11.1 percent of annual gross domestic product in 2009, Spain met its 2010 target and cut the deficit to 9.3 percent of GDP. It is now targeting deficits of 6.0 percent of GDP in 2011 and 4.4 percent of GDP in 2012, but there seems to be little chance of those targets being met if growth does not miraculously pick up.

The prospect of another recession

No one now believes Spain can achieve the official 2011 economic growth target of 1.3 percent, and some analysts are also pointing to the prospect of a new recession taking hold over the winter. It will hardly be the easiest time to take over as prime minister. However, Rajoy may have a few advantages that Zapatero never enjoyed.

One would be an absolute majority in Congress if he can secure it which would give the new government an almost free hand to pass deficit-cutting measures, without the need to secure support from the Socialists or nationalist parties. An absolute majority would also likely assuage at least some of the worries of international investors by giving a greater sense of political stability, which in turn should lower Spains borrowing costs. And because most of Spains 17 semi-autonomous regional governments are under PP control, Rajoy should have a stronger hand when it comes to trying to clean up bloated regional finances.

Rajoy, therefore, is likely to find himself far less hamstrung than Zapatero in tackling the economy, but the specifics of how he will go about doing so remain anyones guess.

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