Rajoy readies post-election "shock plan"

 

Spain's centre-right opposition leader Mariano Rajoy will implement an economic "shock plan" if he wins a general election that could come within months, senior advisers and members of his Popular Party have told Reuters.

Rajoy, who polls show will be Spain's next prime minister, anticipates strikes and protests in his first year in office, but not enough to derail an intensive reform agenda.

"The measures will be tough and we will have trouble with a lot of people, but people will have to understand that we lived beyond our means. Spaniards will understand," said one party leader.

Although the party has not set out a detailed programme so far, the general idea is to restore markets' confidence, generate investment and create jobs, say five PP sources who spoke to Reuters on condition they not be named.

Among the few specifics the party leaders discussed was immediately deepening the labour reforms of Socialist Prime Minister Jose Luis Rodriguez Zapatero by adopting a single flexible labour contract to make it easier for companies to hire and fire.

Different types of legal contracts regarding severance pay are considered a barrier to hiring in Spain.

The PP also plans to cut taxes on small and medium-sized companies - to stimulate hiring - and impose strict spending and debt caps on the country's 17 autonomous regions.

Polls show the PP has a commanding 14 percentage point lead over the Socialists as Spaniards despair over the European Union's highest jobless rate - one in five of the work force is unemployed.

Zapatero is unpopular for failing to revive the economy after a construction bubble burst in 2007, even though his austerity measures have helped keep Spain from being sucked into the euro zone crisis, so far.

Elections are due by next March but Zapatero is widely expected to bring them forward to take advantage of an uptick in summer employment due to tourism, one of the economy's few bright spots.

El Pais, Spain's most influential newspaper and broadly sympathetic to the Socialists, urged Zapatero on Monday to call early elections, further stirring talk that the Socialists will not hang on until March.

RESTORING CREDIBILITY

Rajoy sees his key agenda as restoring credibility to Spain's economic policy. Its borrowing costs have soared during the prolonged euro zone crisis, which has recently worsened as European leaders put off a second rescue plan for Greece.

"There will be a shock plan to convince markets we can stimulate economic growth," said one top PP lawmaker.

The Socialists aim to slash Spain's public deficit to 6% of GDP this year, from 11% two years ago, but the consensus among economists is that the economy will not grow enough this year or next to create jobs.

The PP says it will move further with deficit reduction but also concentrate on economic growth.

Rajoy's key cabinet ministers - economy, foreign, labour and the deputy prime minister - will be independent technocrats rather than political appointees, sources close to him signal.

While PP leaders say deep spending cuts are needed, they say the shock plan need not cut services in the prized public healthcare system, education and pensions, since reducing inefficiencies will produce savings.

INDIGNANTS NOT A PROBLEM

PP leaders say they recognize they have to be sensitive to underlying discontent as many young Spaniards begin to resent that they won't be as well off as their parents.

However, even though more than half of Spaniards are sympathetic with the tens of thousands of Indignados (Indignant) protesters who have staged waves of demonstrations in public squares, PP leaders say these are not massive enough to necessitate a response.

"What's important is the discontent below the surface, but it doesn't change the PP strategy, the political message doesn't change," said one Rajoy adviser.

The protesters have denounced spending cuts and called, among other things, for electoral reform to break the power of the two big parties and debt relief for borrowers stuck with huge mortages/

But the polls suggest voters are willing to risk more austerity measures from Rajoy and think he will do a better job managing the economy than Zapatero's chosen successor, socialist veteran Alfredo Perez Rubalcaba.

"Most people want more austerity," said a prominent PP lawmaker.

The PP calculates that voter rage is hurting the Socialists more than the conservatives. In local and regional elections in May, Socialist supporters drifted off to smaller progressive parties or stayed away from the polls.

Rajoy, known for moving the PP to the centre after the stridently socially conservative and pro-U.S. leadership of the last PP Prime Minister Jose Maria Aznar, is expected to maintain a low-key campaign strategy.

Rather than going on the attack against the Socialists - which is risky since most Spaniards identify themselves as centre-left - he will count on disillusionment among Socialist voters to hand him a win.

Rajoy's advisers tell him to avoid being provoked by the Socialists, avoid alienating the votes he already has in the bag and let Rubalcaba play out his losing hand.

Rubalcaba has tried to distance himself from Zapatero and proposed a bank tax, among other gestures to woo leftist voters.

But with a Socialist victory looking unlikely, Rubalcaba's best hope is to prevent the PP from taking an absolute majority in parliament, a goal Rajoy has in reach according to the current poll numbers.