Spain announced a
detailed timetable for economic reforms and a tough 2013 budget based
mostly on spending cuts on Thursday in what many see as an effort to
pre-empt the likely conditions of an international bailout.
Ministry budgets were slashed
by 8.9 percent for next year and public sector wages frozen for a third
year as Prime Minister Mariano Rajoy battles to trim one of thes biggest deficits while unemployment benefit costs rise in a recession.
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.
by anti-austerity protests and threats of secession by the wealthy
northwestern region of Catalonia, Rajoy is resisting market and
diplomatic pressure to apply for a rescue, partly out of concern for
national sovereignty but also because EU paymaster germany
insists Spain doesn't need help.
conservative government said tax revenue would be higher than
originally budgeted in 2012 -- partly due to a hike in value-added tax
(VAT) -- and would grow by 3.8 percent next year from this year.
government spending would be cut by 7.3 percent while revenue would
rise 4 percent in 2013 including a big leap in VAT income. Regional
budgets will be presented individually through the year. More details
will be announced on Saturday, when the proposal goes to parliament.
the euro zone's fourth largest economy, is now at the centre of the
euro zone's debt crisis. Investors fear Madrid cannot control its
finances and question whether Rajoy has the political will to take all
the necessary but unpopular measures.
is talking to EU authorities about the terms of a possible aid package
that would trigger an European Central Bank bond-buying programme and
ease Spain's unsustainable funding costs.
has demanded an independent budget oversight entity, which Economy
Minister Luis de Guindos said on Thursday would be created to review
budget execution. The government is still analysing potential conditions
for aid, he said.
Spain's ability to slash the public deficit to 6.3 percent from close
to 9 percent last year, and control spending in regional governments,
has been stoked by demands for independence in Catalonia.
autonomous region's parliament voted on Thursday to hold a referendum
on independence, but Saenz de Santamaria said the region must consult
the rest of the country first.
earmarked by the European Commission as a key area for reform, will
rise by 1 percent next year but Treasury Minister Cristobal Montoro
would not be drawn on whether the government would pay an inflation
catch-up which could be over 3 percent this year.
Before the end of the year the government will announce a pension reform that will restrict early retirement.
ECONOMIC REFORM TIMETABLE
deputy premier said the government would set out 43 new laws to reform
the economy over the next six months and including reforms to the labour
market, public administrations, energy services and telecommunications
The detailed timetable
for economic reforms goes beyond what the European Commission has
required and is an ambitious step forward, the EU's top economic
official said on Thursday in response to the government announcements.
reforms are clearly targeted at some of the most pressing policy
challenges," EU Economic and Monetary Affairs Commissioner Olli Rehn
said in a statement.
Market reaction was cautious.
first impressions (of the announcements) are good, heading towards a
major adjustment in spending rather than in revenues," said Jose Luis
Martinez of Citigroup, in Madrid.
we see as too optimistic the macroeconomic assumption of 0.5 percent
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".
Guindos' statement that the 2012 budget deficit target would be met
this year due to a solid increase in revenues will also be viewed with
suspicion with many economists expecting the government to miss its
continue to heap pressure on the crisis-weary population and are likely
to fuel further street protests, which have become increasingly violent
as tensions rise and police are given the green light to use force to
A quarter of all
Spanish workers are unemployed and tens of thousands have been evicted
from their homes since a housing bubble burst in 2008 and plummeting
consumer and business sentiment tipped the country into a four-year
minister's image, both at home and abroad, has deteriorated rapidly
since his party won an absolute parliamentary majority last November.
pictures of Rajoy enjoying a cigar on Sixth Avenue in New York on
Wednesday while protesters gathered in Madrid fuelled criticism of his
detached attitude toward Spain's mounting problems.