Spain’s Socialists Routed in Local Vote as Protests Spread

Spain’s Socialists suffered their worst electoral defeat in more than 30 years as voters punished Prime Minister Jose Luis Rodriguez Zapatero’s party for soaring unemployment and spending cuts that aimed to shield the country from Europe’s debt crisis.

With 91 percent of votes counted, the opposition People’s Party won 38 percent of the vote in municipal elections, compared with 28 percent for the ruling Socialists, the Interior Ministry said. The Socialists lost control of Barcelona, the country’s second-biggest city, for the first time since 1979. Regional election results weren’t yet available.

“Tonight will not be a good night for the Socialist party,” Elena Valenciano, the spokeswoman of the party’s electoral board told reporters in televised comments after polls closed at 8 p.m. in Madrid.

The transfer of power in the regions threatens to revive concerns over Spain’s budget deficit as newly elected officials may reveal weaker finances than their predecessors reported. The defeat, capping a week of street protests, may further weaken Zapatero as he seeks to convince investors he can tame the euro-region’s third-largest budget shortfall and avoid following Greece, Portugal and Ireland in accepting a bailout.

Zapatero, who leads a minority government, has said he won’t seek a third term in general elections next year and the Socialists’ succession battle is due to start this week.

Catalan Example

After elections in Catalonia last year, the new government said the deficit would be 60 percent wider than previously forecast, undermining confidence in regional governments that together have 115 billion euros of debt.

New administrations in the regions, which control health and education spending and hire half of all public workers, will also have to implement spending cuts postponed during the campaign period, said Angel Laborda, chief economist at Madrid-based Funcas, the savings-bank foundation. Standard & Poor’s cut Catalonia’s credit rating on May 19, because of its swelling debt and deficit, and said it may reduce the grade further.

Maria Dolores de Cospedal, the PP’s candidate in Castilla-La Mancha, had pledged an “audit” of the region, which she said was “practically bankrupt.”

Spain’s 8,000 municipal governments, which are also suffering from a revenue slump caused by the collapse of property prices, owe 33 billion euros in unpaid bills, according to the Platform Against Late Payment, a pressure group.

Borrowing Costs

Concerns about regional finances have helped swell Spain’s borrowing costs, as the gap between Spanish and German 10-year bond yields widened to 243 basis points on May 20, the highest in more than five months, from 218 a week earlier.

Newly elected officials may also seek to address some of the demands of the protests against spending cuts, corruption and an unemployment rate of 21 percent, the euro-region’s highest. Carme Chacon, cited in polls as a candidate to succeed Zapatero, said on May 18 that some of the demonstrators’ proposals were “reasonable.”

Young protesters pitched tents on May 15 in Madrid’s Puerta del Sol and have been there ever since, defying a ban on demonstrations the day before elections that Spanish police didn’t enforce. They are calling for changes to the electoral system to reduce the dominance of the two main parties and stop politicians facing corruption charges from running for office.

Make-Shift Camp

The protests, which have spread to other Spanish cities and have been supported by people of all ages, call for voters to be able to choose lawmakers directly rather than for party lists. The movement will continue demonstrating “at least” through May 29, it said today in a statement.

The emergence of the make-shift camp in Sol has been spurred by the use of Twitter, mirroring tactics employed in protests in Tunisia and Egypt. The camp, fueled by generators and a solar panel, is divided into areas that include a medical tent, a children’s area and a legal department, while a map of the zone shows three food stalls, stocked by donations.

“No work, no house, no future, no fear,” read one of the posters at the square, one of Madrid’s most famous landmarks.

The Socialist government has angered voters with the deepest budget cuts in three decades and measures to help banks, while 45 percent of young people are out of work. Turning its back on traditional allies in its efforts to stem contagion from the sovereign-debt crisis, the government has cut wages, axed benefits and overhauled labor and pension rules.

Spain, home to a third of the euro region’s unemployed, has committed 11 billion euros from the state’s bank bailout fund to lenders struggling from the collapse of the debt-fueled property boom. Savings banks need another 14 billion euros to meet new capital requirements, and lenders that can’t raise capital privately will tap the fund again.

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