The markets became nervous again last Monday, and not without reason. Greece suffered a downgrade of its rating and Commissioner Olli Rehn said that Athens will not be able to pocket over the next year to 50,000 million announced with privatization.
In addition, Fitch placed on negative outlook for Belgium, and Standard & Poor's to Italy. And if this were not enough, the production growth in Europe fell, beaten by raw material prices and disruptions that caused the tsunami in Japan. So it's no surprise that the stock should fall and that the risk premium in Spain hit 260 points, the highest since January.
Tensions continue over how the EU will solve its sovereign crisis and whether European leaders will continue engaging in the juggling and quick fixes to the point where systemic problems end up blowing off.
In the case of Spain, the severe defeat of the Socialists has created a power vacuum. Uncertainty arises as to whether a government now in office will be able to address market and continue the reforms when it has been unauthorized and its party is undergoing full rebuilding.
The least of concerns are the manifestations of 15-M and its possible future resistance to further cuts, the main concern lays on whether the pace of fiscal adjustment will cool down, especially if the incoming executives in local and regional administrations uncover a high level of delinquency and the hidden deficit found in companies and institutions outside the official accounts.
In fact, growth does not strip, raising a serious questioned on whether the state can be achieved the projected 6 percent deficit at the end of 2011 without privatization. In a breakdown of the GDP, only public consumption and an even smaller exterior sector have contributed, sensitive to foreign competition and that requires production of a large percentage of imported items.
Need for a legitimate government
There is need for a government that brings together enough legitimacy to address the demands for reform. The PP should seek early elections as soon as possible. However, it most likely will not dare. Detailed analysis of the results still presents Rajoy with reasonable. While it is true that the punishment to Zapatero could have been even greater in some general, with these figures, the PP has not achieved an absolute majority.
And four very important communities are missing. Furthermore, the only relief that can extract the PSOE from such a beating is that of the seven points that it lost many are recoverable because they have scattered among IU, UpyD, several regionalist parties, abstention and invalid and blank votes. It is possible that only just over a point decanting the PP has been definitive.
So a very complicated scenario opens. The PP would only be willing to agree specific reforms that will facilitate their work when accessing the Government and provide a certain image of responsibility, such as collective bargaining, pensions and the reopening of the labor reform, so as to avoid when power in the confrontation with the unions and the street.
It would also need to agree on everything that concerns the financial system, as that hot potato will eventually be on its hands. But little else. There are a lot of cuts of superfluous activities that could be restrain, but the Socialists would evade because they assume substantial job cuts.
Surely Rajoy will let PSOE burn with what lies ahead. But that leaves the country again at the feet of horses, just as the markets will not provide much longer.
