Spain’s Socialists suffered their worst electoral defeat in more than 30 years as voters punished Prime Minister Jose Luis Rodriguez Zapatero’s party for soaring unemployment and spending cuts that aimed to shield the country from Europe’s debt crisis. 
 
 With 91 percent of votes counted, the opposition People’s Party won 38 percent of the vote in municipal elections, compared with 28 percent for the ruling Socialists, the Interior Ministry said. The Socialists lost control of Barcelona, the country’s second-biggest city, for the first time since 1979. Regional election results weren’t yet available. 
 
 “Tonight will not be a good night for the Socialist party,” Elena Valenciano, the spokeswoman of the party’s electoral board told reporters in televised comments after polls closed at 8 p.m. in Madrid. 
 
 The transfer of power in the regions threatens to revive concerns over Spain’s budget deficit as newly elected officials may reveal weaker finances than their predecessors reported. The defeat, capping a week of street protests, may further weaken Zapatero as he seeks to convince investors he can tame the euro- region’s third-largest budget shortfall and avoid following Greece, Portugal and Ireland in accepting a bailout. 
 
 Zapatero, who leads a minority government, has said he won’t seek a third term in general elections next year and the Socialists’ succession battle is due to start this week. 
 
 Catalan Example 
 
 After elections in Catalonia last year, the new government said the deficit would be 60 percent wider than previously forecast, undermining confidence in regional governments that together have 115 billion euros of debt. 
 
 New administrations in the regions, which control health and education spending and hire half of all public workers, will also have to implement spending cuts postponed during the campaign period, said Angel Laborda, chief economist at Madrid- based Funcas, the savings-bank foundation. Standard & Poor’s cut Catalonia’s credit rating on May 19, because of its swelling debt and deficit, and said it may reduce the grade further. 
 
 Maria Dolores de Cospedal, the PP’s candidate in Castilla- La Mancha, had pledged an “audit” of the region, which she said was “practically bankrupt.” 
 
 Spain’s 8,000 municipal governments, which are also suffering from a revenue slump caused by the collapse of property prices, owe 33 billion euros in unpaid bills, according to the Platform Against Late Payment, a pressure group. 
 
 Borrowing Costs 
 
 Concerns about regional finances have helped swell Spain’s borrowing costs, as the gap between Spanish and German 10-year bond yields widened to 243 basis points on May 20, the highest in more than five months, from 218 a week earlier. 
 
 Newly elected officials may also seek to address some of the demands of the protests against spending cuts, corruption and an unemployment rate of 21 percent, the euro-region’s highest. Carme Chacon, cited in polls as a candidate to succeed Zapatero, said on May 18 that some of the demonstrators’ proposals were “reasonable.” 
 
 Young protesters pitched tents on May 15 in Madrid’s Puerta del Sol and have been there ever since, defying a ban on demonstrations the day before elections that Spanish police didn’t enforce. They are calling for changes to the electoral system to reduce the dominance of the two main parties and stop politicians facing corruption charges from running for office. 
 
 Make-Shift Camp 
 
 The protests, which have spread to other Spanish cities and have been supported by people of all ages, call for voters to be able to choose lawmakers directly rather than for party lists. The movement will continue demonstrating “at least” through May 29, it said today in a statement. 
 
 The emergence of the make-shift camp in Sol has been spurred by the use of Twitter, mirroring tactics employed in protests in Tunisia and Egypt. The camp, fueled by generators and a solar panel, is divided into areas that include a medical tent, a children’s area and a legal department, while a map of the zone shows three food stalls, stocked by donations. 
 
 “No work, no house, no future, no fear,” read one of the posters at the square, one of Madrid’s most famous landmarks. 
 
 The Socialist government has angered voters with the deepest budget cuts in three decades and measures to help banks, while 45 percent of young people are out of work. Turning its back on traditional allies in its efforts to stem contagion from the sovereign-debt crisis, the government has cut wages, axed benefits and overhauled labor and pension rules. 
 
 Spain, home to a third of the euro region’s unemployed, has committed 11 billion euros from the state’s bank bailout fund to lenders struggling from the collapse of the debt-fueled property boom. Savings banks need another 14 billion euros to meet new capital requirements, and lenders that can’t raise capital privately will tap the fund again. 
 
 To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net 
 
 To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net ||||| Conservatives won 186 of the 350 seats in parliament; the Socialists won 110. But the sharp swing was more a result of millions of voters abandoning the Socialists for smaller parties, not conservatives picking up new voters, suggesting a country more dispirited with the policies of the past than excited about the future. 
 
 The leader of the conservatives, Mariano Rajoy, 56, will not take over for another month, but he is widely expected to announce his economic team and strategy in the coming days. 
 
 “It is times like these that measure what men and societies are made of,” Rajoy said Sunday in his victory speech. “Our destiny is to play a big role in and with Europe. We will be more loyal but also more demanding. . . . There aren’t going to be any miracles, but we didn’t promise them.” 
 
 Sunday’s vote gives Europe another leader closely aligned with the austerity-based consensus that the continent’s strongest economies say is the solution to what plagues the weaker ones. In recent weeks, leaders in Italy and Greece have been forced from their perches. 
 
 Still, Rajoy may have limited influence over problems that have spread to France, Austria and the Netherlands — countries long associated with fiscal discipline and economic power — which saw their borrowing costs spike last week. France has called for continent-wide solutions more radical than those applied so far, including the printing of more money to prop up struggling countries, something Germany staunchly opposes. 
 
 In Spain, Socialist Prime Minister Jose Luis Rodriguez Zapatero had abandoned many of his party’s historic positions to implement budget cuts aimed at getting the country’s finances under control. But they did little to head off the nation’s 22.6 percent unemployment rate. 
 
 Last week, Spain’s borrowing costs spiked to their highest level since 1997, and one of Rajoy’s first tasks will be to soothe investors’ fears about his country’s viability. 
 
 Rajoy’s challenger, Alfredo Perez Rubalcaba, 60, seemed to accept defeat long before the election was held. Zapatero decided earlier this year not to stand for reelection. 
 
 “Countries like Spain are on the brink,” said Fernando Fernandez, an economist and former International Monetary Fund official who teaches at IE Business School in Madrid. “This government will have the moral authority” to make changes, he said. 
 
 Fernandez said that in addition to another round of budget cuts, he expected the new government would overhaul the labor market to make it easier to hire and fire workers, which could help create jobs in the long term but might add to joblessness in the immediate future. 
 
 Rajoy, an unflashy former cabinet minister who has led his People’s Party since 2004, had tried twice before to win Spain’s top job. The third time, he has been the beneficiary of a terrible economy. 
 
 “Rajoy isn’t charismatic at all,” said Narciso Michavila, who runs the polling firm GAD3. “But in this moment, that’s precisely his strength. He’s this boring guy, but you can rely on him.” 
 
 By many measures, Spain has been a model when compared with Italy and Greece, where political gridlock is still impeding any economic changes. But that has not helped avert the country’s troubles. Spain experienced a real estate bubble, comparable with the most recent one in the United States, that led to high levels of household debt and bad balance sheets at banks when it burst two years ago. Industries that previously powered the economy, such as construction, are now virtually nonexistent, pushing unemployment over 40 percent among workers ages 15 to 24. 
 
 Voters Sunday had little enthusiasm for the election, and many said they saw little difference between the two main parties. The Socialists had 4 million fewer votes than in the 2008 election. The conservatives gained just over 500,000 compared with their previous results. 
 
 “They’re the same dog with a different collar,” said Rosario Gomez, 43, a housecleaner who lives in the working-class Vallecas neighborhood of Madrid. “I work less and less, and I have less and less money.” 
 
 Special correspondent Pamela Rolfe contributed to this report.
– Facing widespread protests amid 21.3% unemployment, Spain’s ruling Socialist party suffered a resounding defeat at the hands of conservatives yesterday—reportedly the party's worst-ever performance in local and regional elections. The conservative People's Party took 38% of the vote at the municipal level, compared with 28% for the Socialists, who lost control of Seville and Barcelona; they've controlled the latter since 1979, reports Bloomberg. “It is reasonable to expect that the Socialist party be punished today at the polls. We accept this and we understand it,” said PM Jose Luis Rodriguez Zapatero. But it doesn’t mean he’ll set an earlier date for general elections, he said; they’re due by next March, the AP reports.