Spain's crisis budget imposes further cuts

Friday 28 September 2012

SPAIN has announced a detailed timetable for economic reforms and a tough 2013 budget based primarily on spending cuts in what many see as an effort to pre-empt the likely terms of any international bailout.

Custom byline text:

Andres Gonzalez MADRID

After violence on the streets of Madrid earlier this week in the run-up to the new austerity measures being announced, Government ministries saw their budgets slashed by 8.9% for next year.

Prime Minister Mariano Rajoy's battle to reduce one of the eurozone's biggest deficits has been made harder by falling tax revenues in a prolonged recession.

However, the conservative Government said tax revenue would be higher in 2012 than it had been originally budgeted for and would grow 3.8% in next year from this year. Spending cuts would be worth 0.77% of gross domestic product in 2013, while adjustment in revenue would be worth 0.56% of GDP."This is a crisis budget aimed at emerging from the crisis. In this budget there is a larger adjustment of spending than revenue," Deputy Prime Minister Soraya Saenz de Santamaria told a news conference after a marathon six-hour cabinet meeting.Spain, the eurozone's fourth-largest economy, is at the centre of the crisis. Investors fear Madrid cannot control its finances and Mr Rajoy does not have the political will to take all the necessary but unpopular measures.Madrid is talking to Brussels about the terms of a possible European aid package that would trigger a European Central Bank (ECB) bond-buying programme and ease Madrid's unsustainable borrowing costs.Ms Saenz de Santamaria said the Government would include 43 new laws to reform the economy over the next six months.She said efforts to close the Government's deficit would focus more on spending cuts than tax rises. The only areas of spending to increase in 2013 would be pensions, student scholarships and interest payments.Ms Saenz de Santamaria said the Government would present reforms to the pension system by the end of the year.Uncertainty over the timing of an aid request and divisions within the European Union over a plan to create a banking union sent the yield on Spain's 10-year bond yesterday to its highest since the ECB announced its bond-buying plan on September 6."The first impression is good, heading towards a major adjustment in spending rather than in revenues," said Jose Luis Martinez of Citigroup, in Madrid."However, we see as too optimistic the macroeconomic assumption of 0.5% recession for the next year. We see a scenario with a deeper recession and if this were the case, further spending cuts will be needed."Meanwhile, Greek political leaders have broadly agreed on a nearly €12 billion ( £9.5bn) austerity package despite reservations over wage and pension cuts, bringing Athens closer to a final deal on the contentious plan.After weeks of haggling over the budget cuts, Prime Minister Antonis Samaras's allies have struck a deal on the composition of the package and are ironing out final details of how salary and pension cuts will be spread, officials said."There is a basic agreement. We're moving forward to the final negotiations," Finance Minister Yannis Stournaras said after a meeting of the three leaders in Samaras's conservative-led Government.Greece's focus now shifts to clinching a deal with the troika of European Commission, ECB and the International Monetary Fund lenders, who return to Athens early next week to conclude talks on the package.

Contextual targeting label:

Local government

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

Spain's crisis budget imposes further cuts

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED