Nov. 17, 2011, 10:18 a.m. EST

Spain goes to the polls as debt fears grow

New government must shore up confidence as borrowing costs soar

By Barbara Kollmeyer, MarketWatch

Analysts say that Sunday’s election could offer at least short-term relief for investors. A switch to the Popular Party from the embattled Socialists could buy Spain some time to take the necessary measures to win back the confidence of investors. Read also Spanish voters ready to swing to the right

The ruling Socialists, which suffered heavy losses in regional elections earlier this year, are widely criticized for a late reaction to and mismanagement of the crisis. The Popular Party is expected to be friendlier to businesses by lowering taxes and reforming labor laws to make it easier to hire and fire workers, factors many see as crucial to getting the economy going again.

“If [the PP] gets a majority, which I think is going to happen, laws will be more easily passed through, which will be positive for investors, because smaller parties won’t be able to block reforms or crucial new laws,” said Predrag Dukic, senior equity salesman at CM Capital Markets in Madrid.

“You’ll see greater speed, greater decision-making, and a little bit more confidence,” he said.

More importantly, Rajoy is expected to heed the advice of his German and French counterparts, who are seen to be calling the shots in the European sovereign debt crisis.

If it provides a temporary increase in the market, it would be good to cash in some quick profits or cover loses.