Rajoy Should Seek EU Aid After Galicia Win, Research Group Says

Prime Minister Mariano Rajoy should request a bailout from the European Union now that regional elections are out of the way, said a research institute linked to Spain’s employers lobby.

Rajoy cleared one obstacle on the path to a possible bailout when his People’s Party won 41 of the 75 seats in the Galician assembly, in a victory the party called a vindication of his austerity policies. The PP vote slipped 11 percent in the Basque Country as nationalists took control of the region.

Victory in his home region shores up Rajoy’s powerbase as he tries to rein in Catalan nationalists pressing for greater independence from Madrid while keeping financial markets at bay and delivering on his budget commitments to Europe. With his national support waning, Rajoy also faces his second general strike next month as opposition to his austerity program shifts away from the ballot box onto the streets.

“Spain should accept conditions set by the European Central Bank and other European authorities and the sooner the better,” Jose Luis Feito, chairman of Instituto de Estudios Economicos, or IEE, a research institute tied to Spain’s main business lobby told reporters today. “It’s very difficult to impose substantial cuts in public services that hit living standards, but the longer we wait, the more difficult and drastic it’ll be.”

New Tools

Rajoy has been mulling a bailout request that would put Europe’s newest crisis-fighting tools to the test in an economy that’s twice the combined size of Greece, Ireland and Portugal. At a summit last week, European Union leaders failed to fulfill pledges made in June for greater integration, as German Chancellor Angela Merkel pushed back against demands from France and Spain.

Spanish bonds fell with the yield on 10-year debt rising 3 basis points to 5.41 percent at 1:40 p.m. Madrid time. Even after a rally last week, Spain still pays 379 basis points more than Germany to borrow for 10 years; the Ibex-35 (IBEX) stock index rose 0.2 percent.

The PP’s gain in Galicia reflected the collapse of its main rivals. The Socialist Party’s 294,000 votes, just over half what it received in 2009, reduced its representation to 18 lawmakers from 25, while the Galician Nationalists’ vote dropped 46 percent as they claimed 7 seats. The PP added three seats from its 2009 levels.

National Suppport

Nationally, support for the PP fell to 37 percent from 45 percent at the November election, a poll by state-run CIS showed on Aug. 6. A Metroscopia poll for the newspaper El Pais last month showed 84 percent of Spanish voters have little or no confidence in Rajoy.

Galicia, run by Alberto Nunez Feijoo since 2009, was one of the first regions to implement an austerity program and had one of the smallest budget deficits last year. Feijoo, seen as a possible successor to Rajoy, coupled cuts in health care with sales of the administration’s luxury cars.

“The steps that we have explained have to be taken to resolve the crisis have had overwhelming support,” Carlos Floriano, the PP’s campaign chief, said in an interview on public broadcaster Radio Nacional de Espana. “There is no precedent in this crisis situation of a government not just defending but increasing its majority.”

To contact the reporters on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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