Rajoy vows to get Spain moving again

Mariano Rajoy
Rajoy has no "intention to raise taxes"

The new conservative prime minister of Spain, Mariano Rajoy, pledged yesterday to reduce the size of Spain’s public sector, to clean up the banking system and introduce corporate tax breaks with the aim of reducing the country’s deficit and revive investment.

In his first formal address to parliament since winning the election in November Rajoy said “Those who think that Spain will not be capable of making the necessary reforms to be successful in the Europe of the euro are totally wrong,”. Rajoy’s Popular Party took victory from the ruling Socialists who had been in power for almost eight years.

Rajoy agreed with the possibility of Spain slipping back into recession saying the outlook for the economy “couldn’t be darker”, adding that it was being “left behind” while some of it’s European neighbours grew.

“Expectations for the coming two quarters aren’t good at all,” he said.

With plans to keep the countries budget deficit under six percent of GDP, as agreed between the previous government and the European Union, Rajoy needs to cut 16.5 billion euros from the 2012 budget but did not say specifically how this would be achieved. The thought among economist and analysts is that it will not be possible for Spain to meet that target this year.

Mr. Rajoy said he hoped to introduce “cuts in every aspect of expenditure,” with the exception of pensions, which he is willing to raise. He added that public hiring will be frozen and that he had no “intention to raise taxes.”

Spain once had a booming economy but over recent years it has suffered from the effects of a huge real-estate bubble, poor growth and huge debt, as is the situation in other euro zone countries.

Rajoy said there would be a cabinet meeting on December 30th after which more details of his austerity plans would be released. The meeting will decide if Spain is likely to meet the six percent target. He added that each percentage point above the target would require a further 10 billion euros in cuts.

He said that the banks in Spain required further consolidation and that his government will force the banks to sell more of their real-estate holdings and be more conservative when providing valuations.

Mr. Rajoy also promised to make changes to Spain’s labour laws to fight growing unemployment. Spain currently shows 21 percent unemplyment, double the European average.

Austerity measures in other euro zone countries like Greece and Italy were met with angry street protests but, so far, this has not spread to Spain.

Rajoy will be formally elected prime minister on Tuesday and will be presented to King Juan Carlos I on Wednesday, at which point he will name his cabinet.