Spain's government yesterday unveiled a new round of spending cuts and tough austerity measures in its 2013 budget, which is expected to pre-empt the conditions its European partners could lay down if the indebted nation becomes the latest eurozone member to request a bailout.
The small print for the 2013 budget will not be revealed until
tomorrow, but media estimates said that yesterday's savings and tax
hikes would be worth around 40bn, most of it disappearing into debt
servicing. Ministries will be asked to cut their budgets by an
average of 8.9 per cent. A further 4.3bn will be squeezed out of
Spain's taxpayers.
"This is a crisis budget aimed at emerging from the crisis... In
this budget there is a larger adjustment of spending than revenue,"
said Deputy Prime Minister Soraya Saenz.
The budget comes barely six months after the government announced
the biggest series of austerity cutbacks in the country's modern
history for its 2012 budget, axing 27bn. France is also expected to
announce a budget today of spending cuts and new taxes.
For Spain's Prime Minister, Mariano Rajoy, this latest round of
cuts and tax hikes are considered a necessary evil if he is to
convince his European colleagues that he can meet deficit targets
and ease the pressure on empty coffers. The measures are designed to
ramp up credibility in the eurozone to its highest level possible,
prior to an widely anticipated bailout for Spanish banks.
Mr Rajoy and his ruling Partido Popular are scrambling to keep in
line with the EU budget deficit of 6.3 per cent of GDP this year and
4.5 per cent of GDP in 2013. Discouragingly, by June Spain's deficit
for 2012 had already reached around 4 per cent of GDP. But that is
far from his only headache.
These renewed breakaway impulses are linked to the Spanish
economy facing its most unrelenting recession since the 1950s.
Unemployment is set to drop three-tenths of a per cent in 2013, to
24.3 per cent. There have been protests over the deteriorating
quality of life. Thousands of demonstrators this week tried to ring
the Houses of Parliament. Dozens of police and demonstrators were
injured in clashes.
If the depth of government cuts announced yesterday was grievous
enough for Spain's deteriorating economy, then today's news may be
even worse when a stress test showing the exact size of Spain's
toxic housing debts in its banking system is made public.
Eurozone discontent is also likely to spread to France, where an
increasingly unpopular President Franois Hollande unveils 30bn of
increased taxes and spending cuts in an attempt to honour France's
deficit-cutting commitments for next year.
Against the background of the resurgent crisis in the eurozone,
the Finance Minister, Pierre Moscovici, faces the thankless task of
satisfying both the markets and fractious French public opinion that
his 2013 budget can deliver Mr Hollande's campaign promise of
"growth with discipline".
With the French jobless total passing three million this week and
further industrial redundancies threatening, France faces economic
stagnation or recession next year. The broad lines of the new budget
have already been revealed. France will, in theory, meet the
eurozone target of a 3 per cent of GDP budget deficit next year by
raising 20bn in new taxes and cutting 10bn from state spending. The
share of GDP "spent" by the state will remain at 56 per cent.
Faced with a possible revolt on the Left, Mr Moscovici insists
that this is not an "austerity" budget. When addressing the
international markets, he says that it is the biggest deficit
correction attempted by any French government in three decades.
