The Eurozone crisis has claimed its third government in a month, with Spanish voters giving the conservative Mariano Rajoy's People's Party a 16 percentage points triumph over José Luis Rodriguez Zapatero's Socialist Party. Under the proportional electoral system, the winners have an absolute majority, with 186 seats out of 350 in the lower chamber of parliament, and are also set for a large Senate majority. The Socialists, who had called the election six months early in the hope of a third four-year term, lost one third of their seats. Despite being led through the campaign by the highly-respected Alredo Pérez Rubalcaba, they finished with their worst showing since the first post-Franco elections held in 1977. The economy, which was the decisive election issue, is moving steadily towards the point where, like those of Greece and Portugal, it will need a bailout. Spanish borrowing on international markets now faces interest rates of 6.3 per cent on 10-year loans, in contrast to 1.3 per cent for Germany. Unemployment is at 23 per cent. The Zapatero government has paid the price for being in office at the wrong time, when the housing bubble it was not really responsible for burst. Under Spanish procedures, the new government will not be formed for another few weeks.
It is true that Mr. Rajoy has promised no miracles. He says Spain will continue working within and through the institutions of the European Union. But his policy file looks thin, with few intentions stated beyond tax cuts for the small and medium-sized businesses that comprise over 90 per cent of the country's firms. He will benefit from measures his predecessor introduced, such as civil service pay cuts, a pensions freeze, and a higher retirement age, in addition to a constitutional amendment requiring long-term caps on budget deficits; Mr. Rajoy will have the difficult task of specifying the level of capping. Moreover, under the Socialist government, Spain's debt ratio fell to 36 per cent of GDP by 2007, and in effect Mr. Zapatero maintained zero borrowing on average until late 2008. Then disaster hit the Spanish economy with the housing bubble pushing mortgages up to unsustainable levels; when the bubble burst, the construction sector led the slide and revenues fell sharply. The economy now faces a deflationary spiral, not least because Mr. Rajoy's ideology involves yet more austerity. Nobel laureate Paul Krugman calls this strategy a romantic fantasy. The Spanish electorate may well find that, with the country in a hole, the new government knows only how to carry on digging.