By Jason Webb and Andrew Hay
MADRID (Reuters) - Spain's governing Socialists on Mondayprepared a public works programme to reinvigorate the saggingeconomy as they sought allies to enable them to govern afterSunday's election victory.
Prime Minister Jose Luis Rodriguez Zapatero boosted histally of seats in parliament but once again fell short of anabsolute majority, making it likely he would have to negotiatewith Catalan nationalists in order to pass legislation.
The Socialists gained five seats to 169 in the 350-seatparliament. The opposition conservative Popular Party alsogained seats to reach 153, while smaller left-wing parties andsome nationalist parties lost ground.
Sunday's turnout was a high 75 percent, in an electionovershadowed by the assassination of a former Socialistcouncillor in the Basque Country, blamed on ETA rebels.
Zapatero on Sunday promised to govern for the poor, womenand the young, continuing the progressive note of his firstterm, during which he legalised gay marriage and made divorceeasier in the once deeply Roman Catholic country.
But with Spain's long-booming economy slowing sharply sincethe global credit crunch bit late last year, Zapatero's firstpriority will be to put the lid on unemployment, which rose by50,000 in February alone to 2.3 million.
"We have the confidence that comes from a budget surplus,"said Labour Minister Jesus Caldera, explaining that thegovernment's strong fiscal position meant it would have littledifficulty funding public works programmes.
But, while the surplus is running at 2 percent of grossdomestic product, analysts are unsure how effective a publicspending drive will be in correcting the long-term economicproblems of a country that for years has relied on aconstruction boom and ballooning private sector debt forgrowth.
"They know they have to do something quickly, there's ahigh sense of urgency. The dark clouds have gathered, thequestion is how hard it will rain," said Martin Van Vliet,chief economist at ING Amsterdam.
SPENDING FOR GROWTH
The government hopes increased spending will keep economicgrowth at 3 percent after 3.8 percent expansion last year, butsome private economists, worried by high levels of debt in bothhouseholds and companies, fear it could fall as low as 2percent. The private debt load is reflected by a currentaccount deficit running at nearly 10 percent of gross domesticproduct.
"It's a wise decision to use some of the budget surplus togive a boost to the economy," said Van Vliet.
But he added that spending would do nothing to addressSpain's problems with competitiveness and education. Economistssay it badly needs to make its exports more attractive andencourage inward investment in sectors other than property.
"They're all focused on giving the economy a boost, a muchneeded boost, but it shifts focus away from reforms in thecontext of a huge current account deficit. It's a worryinglonger term risk," he said.
The Barcelona newspaper La Vanguardia reported thatSocialist officials had already met representatives of themoderate Catalan nationalist party Convergencia i Unio to talkabout a possible deal. CiU, which won about 11 seats accordingto the latest count figures, declined to comment.
"They (the Socialists) are seven seats away from anabsolute majority. They can pick and choose their allies on anad hoc basis," said Charles Powell, of San Pablo-CEUUniversity.
Zapatero had no permanent alliance with other partiesduring the previous parliament, although he often relied onUnited Left and the left-wing Catalan nationalists EsquerraRepublicana, who were punished at the polls this time.
CiU's parliamentary leader Josep Antoni Duran i Lleida saidhe would wait and see if he got a call from the Socialists.
"They don't have any options on the left, they can onlymake deals with the centre. Maybe this parliament will startwith one alliance and finish with another, we'll see," Duran iLleida told Spanish television.
Talks with CiU are sure to be complicated by bitternessover the decision by the Catalan branch of the Socialist Partyto exclude the moderate nationalists from the regionalgovernment. CiU would also want a bigger share of tax revenuesfor the wealthy Catalonia region.
(Reporting by Jason Webb and Andrew Hay; Editing by KevinLiffey)
