Rajoy Wins Spanish Election; The Market Waits For Bailout Move

By TraderVox.com

Tradervox.com (Dublin) – Spanish Prime Minister Mariano Rajoy won the elections in region of Galicia held on October 21, extending the majority in the region. Rajoy’s party won 41 out of the 75 seats in the regional assembly as socialists relinquished almost half of their votes in the region. A New Leftist party won nine seats. Rajoy’s party could not secure enough seats in Basque Country where its support is normally weak. The Basque Nationalist Party secured 27 seats in the region allowing it to form a coalition government with other parties.

Economists are expecting Prime Minister Mariano Rajoy to decide on whether to seek bailout from the European Stability Mechanism in order to spark the bond-buying process from the European Central Bank. However, the Prime Minister had indicated last week that the country is under no pressure to seek bailout, quelling speculations that the country will request bailout soon. Rajoy’s efforts together with French President Francoise Hollande, have been met with great opposition from German Chancellor Angela Merkel who is opposed to establishing a banking union in the region. Germany and France are enjoying low benchmark yields as other peripheral nations together with Italy and Spain, the third and fourth largest economies in the euro region, have experience a high borrowing cost.

With another election to be held on November 25 in Catalonia, Prime Minister Rajoy is expected to hold his request for bailout. According to Ken Dubin, a political scientist in Madrid at IE Business School, the Prime Minister might withhold his request for some few weeks to show that they were not waiting for election. The win has been construed my many investors to mean that Spaniards are supporting Rajoy’s austerity measures. Catalan vote is expected to be held on November 25 when Rajoy’s leadership will be tested. According to Gilles Moec, a Chief Economist in London at Deutsche Bank, the Prime Minister should request for bailout before the Catalan elections as the market will react negatively to another nationalist win.

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