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Spanish elections bolster Rajoy's austerity policies

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The unexpectedly strong showing of the PP not only gave the government more internal political capital, but a strong mandate to pursue its belt-tightening economic policy, in a welcome sign for capital markets. Spain is broadly expected to officially request a bailout for its troubled economy, even if it’s still trying to negotiate terms with the ultimate decider, Germany. The electoral results gave an unexpected boost to the government’s policies, and could thus alter the playing field, analysts say.

The election results indicate that vastly more Spaniards back economic reforms than oppose it. But they also warned that the government must gear for a perhaps more destabilizing scenario in which the country’s industrial powerhouses will push their independence aspirations.

In the Basque Country, the winning party is economically conservative, but it also is expected to now pursue a path to full sovereignty, especially with the support of the pro-independence coalition that won a close second place.

Catalonia, Spain’s most important economic motor, will hold elections in November and, as in the Basque Country, the leading party in polls is also economically conservative, but has already committed itself to seek full independence.

More austerity and nationalism

The PP won 41 seats of the 75-member Galicia parliament, five more than in 2009 elections. Socialists lost seven seats and now only have 18, while a left-leaning party made the biggest gains.

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