Conservatives Win in Spain’s Richest State

The outcome underscores the unpopularity of Spain’s socialist prime minister.

Spain’s Socialist prime minister, José Luis Zapatero, is increasingly embattled. Without a majority in parliament, his government has had to rely on the support of minor regional factions. But a recent victory for conservatives in the country’s richest province casts further doubt on the socialists’ ability to garner support for their policies.

Regional elections in Catalonia, both the most prosperous and most populous of Spanish regions, saw gains for the pro-business and nationalist Convergence and Union as well as the local affiliate of the People’s Party, Spain’s right-wing opposition.

The Socialists were decimated in what may well have been a forecast for more regional elections next year, if not the general election of 2012.

Right-wing alliance

Although Convergence and Union intends to govern in Catalonia without a coalition, an alliance with the People’s Party seems likely — which could clear the way for a national alliance after 2012.

As Spain remains mired in recession with unemployment rates at 20 percent, the Catalan nationalists promised to rein in spending and demanded greater autonomy for the province from Madrid.

Along with smaller regional parties, there is now a majority in Catalonia in favor of regional sovereignty — a movement that could upset their relations with the national conservatives. Only one in ten voters backed openly separatist parties, however.

Spain in crisis

The specter of Spain’s demise worries European policymakers and investors after the crises in Greece and Ireland. The government has been trying to convince markets of Spain’s solvency, but as private banks hardly lend and invest it is difficult to imagine Spain recovering soon.

Zapatero has announced labor law and pension reforms. But with trade unions marching against austerity and his own approval rating down to approximately 25 percent, he may not have the political capital anymore to push for necessary spending cuts.

Next year will see Spain’s fiscal strength tested when it is due to repay lenders €192 billion: about a fifth of its total debt.

As a result of higher interest it would have to pay for new borrowing, the Spanish governments expects to see a rise of 18 percent in the cost of financing its debt. Unless it manages to cut spending, tax hikes may be inevitable.

The conservatives are adamantly opposed to raising taxes, especially when consumer spending has slightly increased this year. A raise in the value-added tax, as has been suggested, could well imperil that recovery.