Mariano Rajoy
Mariano Rajoy will take office in one month's time. (Photo: Reuters) Reuters

Having fought an election campaign for six months on a bitter message of austerity and won with a parliamentary majority of 76, the new Spanish prime minister, Mariano Rajoy, now faces the difficult part.

With an escalating deficit, borrowing costs at an all-time high, one in every two young people unemployed and an education sector in desperate need of reform, there is a lot to take on over the next four years.

A senior civil servant said: "If the prime minster does what he said he would during the campaign, the cuts are going to be much more ruthless" than under the previous Socialist government.

Local government cuts

The bulk of the cuts will aim to cut the huge local government costs that have sapped the national budget over the past five years. Aside from the national government, there are country and town administrations all jostling for power.

"Public services will have to suffer," the civil servant said. "There are 17 regions, all with their own local government, and over 8,000 town halls, which also have quite significant power."

There is a feeling, despite the promises of Rajoy's Popular Party, that the public health system will suffer, which will mean longer waiting lists for those who are in need of complicated procedures.

Temporary contracts

The growing anxiety that so many young people have failed to find work has caused many to wonder whether there has been a "lost generation" in Spain. In an attempt to get these people back into work, the new government has proposed to make it easier for companies to hire people on temporary contracts, while offering security to the employees at the same time.

"The new temporary contracts will include social benefits and holiday pay, which will get these people back into work," the civil servant said. "The fundamental question is job security for these people and this new approach will go some way to improving that."

Is a default likely?

Although Spain has an appalling economic record, there are roots of optimism. After a decade-long construction boom, from 1996-2006, the housing bubble burst, causing a huge decay in capital assets across the country. Then the 2008 financial crisis hit.

But unlike many of the international banks, Spain wasn't exposed to many of the toxic assets that led to the banking collapse in 2008. Hence, although the debt was there, it wasn't bottomless.

Spain immediately adopted austerity measures in 2007 and has continued to pay back its debt on time. Economists argue there is no reason why this cannot continue.

"We were living like a rich country and now we have to accept we must live like a poor country," the civil servant said. "If we continue to go down this hard line of cuts, I don't think we will default."


With low costs in Spain, the country has seen a rise in acquisition activity, which the new government hopes will continue throughout its term.

"There are a lot of deals out there at the moment," the civil servant said. "Investments in telecoms, IT infrastructure and waste treatment are certainly recommended."