With most of the votes counted last night, Rajoy’s party had 186 seats out of 350 total, whereas the socialists had 111.
The result gives Rajoy a strong mandate to pass a budget aiming to get the country’s deficit down to 4.4 per cent of GDP this year, which is estimated to translate to spending cuts of €40bn.
That will mean entering fractious negotiations with Spain’s regional governments, which account for a large part of its overspend, although the PP has promised to avoid cutting their health and education budgets.
Rajoy has also promised to implement sweeping labour market reforms that force unions to negotiate with individual firms rather than on an industry-wide basis and to push for further consolidation of Spain’s troubled savings banks, many of which have been nationalised.
The PP’s victory follows a spike in Madrid’s borrowing costs on Friday, when it was forced to pay close to seven per cent to sell 10-year bonds, a level viewed as a bail-out threshold. Rajoy has said that Spain must ditch its “ostrich policy” approach of sticking its head in the sand.