UPDATE 7-Spanish PM acts to strengthen govt with reshuffle

* Broadest cabinet changes since government came to power

* Heavyweight Rubalcaba new deputy prime minister

* Economy ministry unchanged

(Adds analyst comment, updates bond spreads)

By Sonya Dowsett

MADRID, Oct 20 (BestGrowthStock) – Spain’s Prime Minister Jose Luis
Rodriguez Zapatero overhauled his cabinet on Wednesday, aiming
to strengthen his unpopular government while battling to tame a
massive public deficit and revive a stagnant economy.

Interior Minister Alfredo Perez Rubalcaba, who has a high
approval rating and is seen by some as a successor to Zapatero,
becomes deputy prime minister in the biggest reshuffle since the
Socialists came to power in 2004.

“It’s time for another kind of political action, a different
direction and drive from the government,” Zapatero said in a
speech announcing five new ministers on top of Rubalcaba
assuming the extra role, and the closure of two ministries.

Spaniards suffering tax increases, salary reductions and the
highest unemployment rate in the euro zone have punished the
government, whose approval ratings have sunk below 30 percent.

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For complete coverage click on [ID:nLDE69J1DO]

For an analysis click on [ID:nLDE69J1ET]

For facts about Rubalcaba click on [ID:nLDE69J0N1]

For a Reuters Insider comment http://link.reuters.com/qux39p

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Zapatero recently wrapped up deals with two minority parties
to pass a 2011 budget with deep spending cuts, aimed at assuring
investors that Spain can trim its deficit which ballooned out of
control after stimulus measures to stave off recession.

If he had not found the votes he could have faced an early
election, which polls show he would lose by almost 15 percentage
points to the centre-right Popular Party. His term ends in 2012.

HEIR APPARENT

Socialist party veteran Rubalcaba, nine years older than the
50-year-old prime minister, heads the government campaign
against Basque separatist group ETA which has weakened the armed
rebels with a string of arrests of the group’s leaders.

“He’s the heir apparent,” said Pedro Schwartz, an economist
at San Pablo University in Madrid. “He’s intelligent and
efficient and he does reinforce the government.”

Zapatero made no changes at the Economy Ministry, run by
Elena Salgado, who implemented the tough austerity measures
brought in after investors punished Spain’s sovereign debt on
concerns the country was moving toward a Greek-style bailout.

Any changes in the Economy Ministry at this time could
create uncertainty and spook financial markets, analysts said.

The 2011 budget cuts spending and increases taxes to shrink
one of the euro zone’s largest public deficits to 6 percent of
gross domestic product next year from 11 percent.

The government has stuck with its austerity plan even while
recognising that spending cuts will make it hard for economic
recovery to take off.

The economy is expected to grow only 0.4 percent next year,
according to experts surveyed by Reuters [ID:nLDE69620Z], well
below the official forecast of 1.3 percent.

Although spending cuts have hurt the government’s popularity
at home, they have boosted confidence among investors who now
view Spain as less risky than peripheral euro zone economies
such as Portugal and Ireland.

Spain’s 10-year bono (ES10YT=TWEB: ) spread over the
equivalent German bund (DE10YT=TWEB: ) widened around 6 basis
points on Wednesday ahead of the reshuffle before shrinking back
to around 163 bps, less than half that of Ireland.

In other changes, Trinidad Jimenez will be Spain’s new
foreign minister, leaving her post as health minister. Labour
Minister Celestino Corbacho will step down, as expected, to be
replaced by economist Valeriano Gomez.

Zapatero dissolved the ministries of equality and housing as
part of cost cuts.
(Additional reporting by Fiona Ortiz and Paul Day, Editing by
Janet Lawrence)

UPDATE 7-Spanish PM acts to strengthen govt with reshuffle