Never since the death of Generalissimo Francisco Franco in 1975 has the Spanish right held so much power. After a clean sweep in last Sunday’s elections with nearly 45 percent of the votes, the conservative People’s Party, under veteran leader Mariano Rajoy, now controls every stratum of the quasi-federal Spanish state: 186 seats—an overall majority of eighteen—in the Madrid Parliament; governments in all but two of Spain’s powerful autonomous regional administrations; and every big city except Barcelona and Seville.
Just like Portugal and Greece, the other center-left governments on the troubled Mediterranean rim of the eurozone, José Luis Rodríguez Zapatero’s governing socialists have paid the electoral price of austerity, recession and mass unemployment, taking only 29 percent of the vote, an all-time low, down from a record 44 percent in the 2008 elections.
Those are reasons enough for the People’s Party leader to be cheerful. Yet Rajoy seemed troubled on Sunday night as he waved from the balcony of the PP headquarters on the elegant Calle Genova in central Madrid. Just like the technocrats now in power in Greece and Italy, the future prime minister is acutely aware that, in the eurozone’s deepening debt crisis, total power at the national level is no power at all. Spain’s fate depends more on international bond traders and central bankers in Frankfurt than on Rajoy’s new cabinet.
By Monday morning, Rajoy’s dilemma was painfully clear. Nervous bond investors—ever more terrified of a cascade of sovereign defaults that would augur the end of Europe’s monetary union—pushed Spanish interest rates back up to record levels, around 6.5 percent. This is manageable in the short term, since Spain’s debt, at 65 percent of GDP, is just over half Italy’s. But, in the medium run, such high debt-servicing costs would bankrupt Spain. Around midday Monday, Rajoy made his first supplicant telephone call to German Chancellor Angela Merkel in search of a commitment that there would be European Central Bank backing of Spanish debt in return for complete compliance with the eurozone’s austerity demands. The ratings agency Fitch sternly advised Rajoy to “positively surprise” bond investors with “ambitious and radical fiscal and structural reform.” The alternative would be further downgrades to its debt.
As the Spanish economy slides further into recession, the only surprise from the new PP government will come in the form of budget and wage cuts in an attempt to bring the budget deficit down to 4.4 percent of GDP by the end of next year, from over 7 percent now. This will likely involve further cuts to public-sector pay, on top of the 5 percent wage cut under Zapatero in 2010. The PP’s election promise to increase pensions in line with inflation looks shaky too. Rajoy will put pressure on regional governments, most now under PP control, to rein in deficits by whatever means necessary.