Eurozone Crisis: Centre Right Expected To Win In Spanish Election

Centre Right Expected To Win In Spanish Election

Spain's general election vote begins on Sunday with the country's economic future hanging in the balance. Opinion polls have shown that Mariano Rajoy's centre right People's Party is likely to win a clear majority over the incumbent socialists.

Rajoy has promised to reform the country's economy, which has been struggling since its real estate bubble burst, putting enormous pressure on its banks and its cost of borrowing.

Although Spain does not have the same levels of sovereign debt as Italy or Greece - currently the Spanish national debt is around 60% of gross domestic product (GDP), compared to Italy's 120% - its banks are seen as vulnerable to shocks domestically and abroad.

Yields on Spanish debt rose during the week as investors became increasingly concerned over the country's solvency in the wake of the collapse of the Italian government the previous weekend. The yield on Spain's 10-year bonds came close to 7% and was only kept in check by aggressive buying from the European Central Bank, analysts said.

Current prime minister Jose Luis Rodriguez Zapatero, in power since 2004, is not standing. Alfredo Perez Rubalcaba, the former interior minister, is the Socialist Party's candidate, but has faced an uphill struggle against rising unemployment and economic malaise.

Political stalemate in Italy and Greece led to speculative attacks on the countries' bond markets, as investors saw no way for vital austerity measures to actually be implemented. Both of those countries have been compelled to name technocratic governments in order to try to push through painful legislation.

Markets may be encouraged by a strong win for Rajoy's party, which has pledged deep cuts to try to rein in government spending and bring the country back to solvency. In interviews, Rajoy has emphasised that he is committed to remaining in the single currency area.

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