Spain's election dominated by economy, debt crisis

Spain's right was storming towards a landslide win in a vote to be held Sunday, carried by popular anger over an economic slump and a debt crisis that has toppled a string of eurozone leaders. Street protests and a debt market tempest chased the ruling Socialists up to the last moment before the election, which opinion polls show the opposition Popular Party leader Mariano Rajoy winning by a mile. Though considered uncharismatic even by many of his supporters, the 56-year-old Rajoy has galvanised support by promising a break from the past to fix the economy and cut a 21.5-percent unemployment rate. Rajoy has given few details of his austerity plans but analysts say Sunday's winner must quickly impose reforms and cut costs to reassure world markets about Spain's determination to repay its debts. Spain's risk premium -- the extra interest rate investors demand over safe-haven German debt -- shot to a euro-era high of more than 500 basis points in the days ahead of the vote. Similar market pressure led to the fall of governments in other fragile economies in the eurozone, from Ireland and Portugal to Greece and Italy. Now, the polls say, it is Spain's turn.  "The choice which Spanish voters make Sunday is of course important for Spain. It is also important for France, for the euro and for Europe," France's leading daily Le Monde said in an edition devoted to Spain published Saturday. But the new government will have to act fast to avoid invoking the wrath of the markets again. "If the markets think the new government is not going to act with the necessary determination, they will raise the risk premium further," said Daniel Pingarron, analyst at trading house IG Markets. Rajoy has vowed to make cuts "everywhere", except for pensions, so as to meet Spain's target of slashing the public deficit to 4.4 percent of gross domestic product in 2012 from 9.3 percent last year. "We are going to comply with our deficit obligations," Rajoy told Onda Cero radio on Friday. Prime Minister Jose Luis Rodriguez Zapatero's government is widely blamed for reacting too slowly to the 2008 property bubble collapse, which threw millions of people out of work. His government enacted austerity measures from last year that bled support, including cutting public sector wages by an average 5.0 percent, freezing pensions and raising the retirement age from 65 to 67. A nationwide protest movement erupted in May to vent anger over the high jobless rate and corrupt politicians, accusing the authorities of favouring big business and banks over ordinary people.  About 50 members of the "indignant" movement gathered to discuss the elections in Madrid's central Puerta del Sol square on Saturday, a day officially devoted to reflection and in which political campaigning is banned. "We are taking steps backwards," said Angeles Espinosa, a 48-year-old manager, at the gathering. "What we see is that tomorrow the majority of Spaniards are going to elect a new head of government who is nothing more than a lamb who is going to lead us to the mouth of the wolf." The "indignants" mounted a similar protest before local elections in May, in which the Socialists were soundly defeated. This year Zapatero, 51, has bowed out of the fight after two terms and nearly eight years in office. The Socialists' new standard bearer, 60-year-old Alfredo Perez Rubalcaba, has warned voters that the right will cut health and education. Whoever wins, and whatever action they take, some analysts say the answer to Spain's problems lies with the European Union.  Barclays Capital warned in a report on Friday that Spain will likely need the European Central Bank to step up its support even if a new Popular Party government moves quickly to enact reforms. "Another round of labour market reforms, banking sector restructuring and enhanced fiscal consolidation are the likely priorities for the new government," it said. "Those policies would undoubtedly be welcomed by markets, yet may not be enough to stabilise the Spanish sovereign. Ultimately, we think it likely that the ECB will need to step up its support."