MercoPress. South Atlantic News Agency

Bad Signal: Spanish Government and Opposition Remain on Collision Course

Mariano Rajoy, leader of the opposition criticized the “policy of waiting”

The Spanish government and opposition made on Wednesday an attempt to join forces against the country's economic crisis amid international concern that Spain could be heading for a Greek-style meltdown.

Spanish Prime Minister José Luis Rodríguez Zapatero and opposition leader Mariano Rajoy said they had agreed to speed up reforms to restructure the financial sector during their meeting on Wednesday.

The governing Socialists and opposition conservatives had formerly been at odds over the economy, and the meeting was the first official one between Rajoy and Rodríguez Zapatero in 18 months. But apparently that was all they could agree on. The meeting was originally suggested by King Juan Carlos a week ago.

Legislation would be presented within three months to increase the political independence of savings banks, facilitate mergers and to improve their capacity to issue credits in an attempt to bolster the economy, Rajoy said. The opposition leader also criticized the government's economic policies, saying that “the policy of waiting cannot go on.”

At first it was hoped that the two leaders would give a joint press conference, a sign that they were in broad agreement. However, Mr. Rajoy emerged, alone, to give his version of the morning’s talks and the Prime Minister only appeared when Rajoy had left.

The Madrid Stock Exchange (Bolsa de Madrid) Ibex 35 index meanwhile recovered slightly from Tuesday, but remained in red figures, falling about 2% in the afternoon after the European Union modestly improved its economic forecast for Spain.

Rodríguez Zapatero on Tuesday strongly denied rumours that Spain was planning to ask the European Union to grant it a Greek-style bailout, describing them as “absolute madness.” Spain was not expected to need a rescue package, European Economic Affairs Commissioner Olli Rehn confirmed Wednesday. The EU improved its economic forecasts for Spain, but only slightly.

The economy will shrink 0.4% this year—down from a previous forecast of 0.6% and grow 0.8% in 2011, the commission said.

Spain's budget deficit will grow to 9.8% of GDP from 9.2% this year. The EU had previously expected the deficit to reach 10.1% in 2010. Unemployment will reach 19.8% in 2011, the EU said. Spain's jobless rate, which surpassed 20% in the first quarter, is the highest in Western Europe.

Rodríguez Zapatero on Wednesday defended the “strength” of Spain's financial system, promising that his government's commitment to cutting the deficit below the EU limit of 3% by 2013 was “being reached.” Rodríguez Zapatero's economic credibility had seriously suffered, several editorials said, accusing the government of making exaggeratedly optimistic economic forecasts while shunning unpopular measures such as cutting social security benefits.