This weekend’s regional elections in Galicia and the Basque Country brought some relief to Prime Minister Mariano Rajoy and his Popular Party (PP). In Galicia, Rajoy’s home region, the PP not only held power, but increased its absolute majority in the region’s parliament. This is good news for Rajoy, as many viewed the Galician elections as a test of popular opinion on Rajoy’s handling of the economic crisis.
News was not so good from the Basque Country where the Basque Nationalist party picked up the most seats and the PP lost 3 seats—aiding the separatists’ cause—but the outcome was largely expected. Meanwhile, the rival Socialist Workers’ party, the dominant party during Spain’s property bubble that led to the crisis, lost a significant number of seats in both Galicia and the Basque Country. The elections suggest that while voters may not love austerity, Rajoy’s fiscal conservativeness may be preferable to the profligacy of his predecessors.
It’s a little too soon, though, to break out the sangria. Europe’s fourth largest economy is mired in recession, bank debt is skyrocketing, and a quarter of the population is out of work. European leaders meeting at their summit in Brussels last week did little to ease the Spanish crisis, at least in the near-term.
They did manage to agree to a timetable and a plan to work out legal issues to create a single supervisory mechanism (SSM). The mechanism is required for banking union and the direct recapitalization of troubled euro zone banks. Spain has requested a banking rescue, estimated at €60 billion ($78 billion), and wants the money to go straight to the banks rather than through the government. This isn’t likely to happen until the SSM is up and running some time in the second half of 2013. In the meantime, money borrowed for the banks will push up Spain’s sovereign debt. And so the pain continues.