Spain vows to press ahead with reform

Tim Wallace
Follow Tim
SPAIN’S reforming Prime Minister was yesterday forced to reiterate his commitment to slashing the budget deficit and shaking up the economy after facing setback in regional elections.

Mariano Rajoy had hoped his centre-right party would gain an absolute majority for the first time in Andalucia, but only won 50 of the region’s 109 seats.

A stronger showing would have made it easier for the PM to push through spending cuts as he strives to hit an already revised 5.3 per cent budget deficit target for the year.

Rajoy faces a general strike on Thursday before he presents his budget on Friday, but said he intends to stay the course with his tough reforms – “we will pass a very, very austere budget,” he promised.

However, investors were unnerved by the weak election news, with stocks falling 0.69 per cent on the IBEX index.

Rajoy won a general election late last year on promises that he would steer Spain through the sovereign debt crisis and make reforms to put the economy on a sound footing.

Meanwhile German Chancellor Angela Merkel confirmed she is prepared to increase the Eurozone’s financial “firewall” ,which aims to reassure investors that the stronger countries are prepared to bailout the weaker nations if necessary.

The current €440bn (£368bn) European Financial Stability Facility is due to be replaced with the permanent European Stability Mechanism in July, and had been expected to come in at around €500bn.

However, speaking at a meeting of her conservative Christian Democrats party, Merkel said she could imagine that the two rescue funds could run in parallel so that a total of €500bn in new funds were available for problem countries.

Spanish Prime Minister Mariano Rajoy (left) still plans to cut spending