By Paul Day
MADRID (Reuters) - Spain's incoming centre-right Prime Minister Mariano Rajoy will outline his first economic reforms and cost-cutting measures on Monday as he prepares to take the helm of a country battered by austerity, mass unemployment and the threat of recession.
But while the rhetoric will be tough, details are expected to be scarce as Rajoy delivers the first speech to parliament of his four-year term.
"The new government is starting in the middle of a very serious situation and the message will be that while it requires blood, sweat and tears, we shouldn't despair," said Angel Laborda, economist at Madrid-based think tank Funcas.
"I think he'll announce the general strategy rather than concrete measures, which I don't think they have still."
A self-proclaimed 'Mr. Normal' and a cautious moderate, Rajoy has made few public appearances since his People's Party (PP) trounced the Socialists in November's election. He has filled his rare speeches with warnings of hard times ahead.
On Monday, he will address the new parliament in which his People's Party (PP) now commands an absolute majority, the largest in Spain in 30 years.
On Wednesday he will be officially signed in as prime minister and name his cabinet, a closely guarded secret which PP sources say only Rajoy knows for sure. It will meet for the first time on Friday.
Spain, with an economy more than twice the combined size of Greece, Portugal and Ireland, the three countries so far bailed out by the European Union and International Monetary Fund, has been under market pressure since the sovereign debt crisis began.
Austerity and reforms by the Socialists have so far kept the wolves from the door. Even so, the premium investors demand to hold Spanish over German debt hangs near euro-era highs, despite some shift in investor concern towards Italy, and the new government will have to work hard to convince markets it is up to the job.
Peaceful protests against the effects of wide-ranging belt tightening take place around the country regularly, but many Spaniards are resigned to deeper cuts and expect years more of economic hardship.
Some 49 percent of Spaniards understand more sacrifices must be made to emerge from the crisis, according to a survey published in El Pais newspaper on Sunday, while 94 percent think a solution to the crisis is a long way off.
Rajoy has already given the basic outline of the reforms he believes are necessary, focusing on the labour market, the banking sector and public accounts. He said last week the Spanish people understood some measures would be unwelcome.
Balancing the budget and extending a constitutional reform passed in September, which enshrines fiscal discipline in law, will be Rajoy's priority, and he is expected to talk about how the government can meet 2012's budget deficit goal of 4.4 percent of Gross Domestic Product.
Spain has cut the budget shortfall from 11.2 percent of GDP in 2009 to an expected around 6.5 percent this year, but must save nearly 30 billion euros ($39.14 billion) extra next year to keep on track, double the savings implemented in 2011.
The conservative party has argued hard against tax hikes which it fears would further stunt already stagnant growth, so Rajoy will, at first at least, focus on slashing spending to bring public accounts back in line.
"In terms of consolidation, most of it will be via spending, and I think we'll see some drastic measures in terms of social security, unemployment benefit, certainly education and health care in particular," said David Bach, political analyst at IE business school in Madrid.
The exact public deficit will not be calculated until the spring once the regions turn in their end-of-year accounts, so Rajoy will avoid announcing where the axe must fall, and how hard, until then.
Spain has the highest unemployment rate in the EU, at 21.5 percent. Its two-tier contract system grants job security to permanent contract holders, with some of the highest lay-off costs in the developed world, and almost no worker rights to everyone else.
Around a quarter of the economy relies on the badly hit construction sector, tourism and agriculture, leaving millions of low-skilled laborers exposed to a seasonally volatile jobs market and employers in need of a flexible workforce.
But with new measures currently under debate by the unions and employers' representatives, who have until January 6 to reach an accord, Rajoy will wait until the new year before making proposals.
Banks will also face a new phase of restructuring, and the PP has said it wants to detail the true value of property assets on their books. A senior party source has said a decision will be made in the first few months of the year, and that one option is to create a 'bad bank' to take on all the troubled assets of otherwise healthy groups.
On Friday, credit rating agency Fitch put six euro zone countries, including Spain, on watch for potential downgrades in the near future.
The clock may be ticking for the euro zone, but Rajoy is unlikely to be cajoled into rushing reforms into law before examining the details. A drop in debt yields at an auction last week suggested that, for now, he may have some room to move.
"The markets have let him get away with not making bold announcements up until now, so I expect his speech to be about principle, tougher reforms and a sort of pep talk," Bach said. ($1 = 0.7665 euros)
(Editing by Mark Trevelyan)