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In a country beset by some of Europe’s worst economic woes, the Spanish Socialist Party (PSOE) has suffered its worst defeat since the country returned to democracy in 1978. The Popular Party (PP), led by Mariano Rajoy, had 34 percent of the municipal vote across the country,10 points higher than the Socialists, and they carried almost all of the 13 out of 17 of regions in play. The vote followed a week in which thousands of Spaniards engaged in mass protests nationwide, reflecting their anger at the failed economic policies of Prime Minister Jose Luis Rodriguez Zapatero’s government.
Spain’s more than 8000 municipalities were the most telling indication of how large this defeat was. In 2007, the PP had a victory margin of about 150,000 votes in cities and town across the nation. This time, their margin was around two million. These victories swept through the former Socialist-held town halls of Barcelona and Seville, and the region of Castilla-La Mancha, where the Socialists have never lost their grip on power.
Zapatero accepted the reality of the verdict in a nation hammered by three years of economic stagnation, which has led to an unemployment rate of 21%, the highest in the European Union. For Spaniards 18-25, the rate stands at a staggering 45%. “These results have a clear relation to the economic crisis we’ve suffered for three years… I know that many Spaniards are going through great difficulties and fear for their jobs and future well being,” said Zapatero at a news conference. Yet the Prime Minister ruled out early elections, saying he intends to press ahead with economy-strengthening measures with help from his existing small-party alliances in parliament, where the Socialists still maintain the largest minority,”to carry out the economic reforms the country needs.”
Ironically, despite the success of the PP, considered a center-right party, much of the anger aimed at Zapatero had to do with his attempts to get government finances under control, via a series of austerity measures, economic overhauls and budget cuts. These are needed if Spain is to avoid becoming the next–and largest–European nation to need a bailout from the International Monetary Fund (IMF). This explains Citigroup bank economists sending a note to their investors last Friday in which they warned “a political defeat for the Socialist party would reinforce our doubts” about Spain’s ability to achieve its “too optimistic” targets for avoiding that fate. This fear was also reflected in last weeks .02 percent increase to 2.43 points in the spread of Spain’s 10-year government bond relative to the German benchmark, raising Spain’s borrowing costs to their highest level in more than five months.
That was Friday. On Monday, the spread was 2.57 percent, reflecting the angst of the financial markets regarding the election results.
Adding to that concern is the possibility that changes in the political makeup in regional and municipal governments would lead to discoveries similar to the one which occurred in Catalonia last November. When center-right Catalan nationalists replaced the Socialist government in that region, incoming officials discovered the local budget deficit was twice the amount than had been previously reported.
These so-called hidden debt concerns may be more widespread than is currently known. “[The election winners are] going to arrive and realize there’s no money,” said Ismael Crespo, political scientist at the Ortega-Maranon Foundation in Madrid. “Many of the regions have problems not only to meet the deficit target but to meet basic services, which until now have been hidden because of the elections,” he added. One of those regions is Castilla-La Mancha, a region where the PP and local business leaders claim invoices of $1.43 billion remain unpaid, and where Maria Dolores de Cospedal, the conservative party’s newly elected-regional president, has pledged to “audit” the region, which she characterized as “practically bankrupt.”
Spain’s 8000 municipal governments aren’t faring any better. The collapse of property prices resulting from over a million unsold homes has engendered a debt of $46.2 billion in unpaid bills, according to the Platform Against Late Payment, a Barcelona pressure group.
That group also illuminates a growing phenomenon in the country, namely, legions of blue collar workers working for months without pay, as employers struggle to stay afloat, due to the fact that thousands of small and mid-sized companies in the country rely on government contracts for work. Platform Against Late Payment estimates at least a half million businesses in the country have closed due to payment delays, a number which is likely to worsen once the scope of government debt becomes clearer.
Much of these late payments by regional and municipal governments grew out of habits adopted during the economic boom that followed Spain’s adoption of the euro in 1999. Those governments, which were also piling up debt at the time, used the delays as a way of freeing up funds for other spending projects. According to Spanish central bank data, aggregate public debt from the 17 autonomous regions amounts to more than $161 billion; public debt from the country’s municipalities and provinces is $49 billion, and the central government’s public debt amounts to $684 billion.
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