Urgent and essential

Since the electoral victory of the Popular Party (PP) on November 20, its leader Mariano Rajoy has kept absolute silence on what he proposes to do about the grave situation of Spain's economic stagnation (perhaps recession by now). Last week we heard only of a few conversations with bankers and with EU governments, but no details transpired. The public and the markets know nothing about the next government's lines of economic policy, though these ought to have been made clear from the beginning of the electoral campaign. The PP leader is excusing himself on the grounds that a few weeks must yet go by before he takes office. But this was not his line during the campaign. Then everything was pressing; time was short, and the elections had to be held earlier (even after early elections had already been called), and a change of the party in power was urgently needed. Now, neither Rajoy nor his party feel pressed, and are giving themselves a breather until mid-December.

But investors and the Spanish public are still awaiting Mariano Rajoy's plan for economic policy. Nobody is asking for a detailed plan. But the next prime minister must immediately announce the basic orientation of his program. The crucial point is whether Spain will do everything necessary to comply with its deficit commitments: six percent in 2011, 4.4 percent in 2012, and three percent in 2013. Attaining these objectives will mean draining the country's economic system of some 41 billion euros between 2011 and 2013. It does not seem that this adjustment can be achieved by public-spending cuts alone. It is likely that the next government will be obliged to raise taxes (VAT, special rates). If this hike is to be effective, the decision has to be immediate. "Everything necessary" means that the government will have to go back on its electoral promise.

Besides, Rajoy and his team ought to clarify just how they are going to cope with recession and unemployment. With a reform of the labor market alone, or will they also include demand-stimulation measures? Any additional labor reform must take the social agents (unions, employers) into account; and thus a deadline is required, after which the government can act unilaterally. Similarly, a further turn of the screw in financial reform in line with that suggested by Rajoy's economic team (the creation of a "bad bank") will require urgent preparatory measures, such as the adjustment of financial assets to their market value.

These are the most pressing points, which by now ought to be public knowledge. The essential ones (that adjustments be carried out with precision, correct growth incentives be adopted, and the intended financial reform be something more than the socialization of losses) can wait until the first major economic package. But it is to be feared that Rajoy and his team will dawdle; that they are now discovering the gravity of the crisis, and that all their previous promises can be put down to a deplorable lack of information.