Europe: Budgets that hurt

Spanish Prime Minister Mariano Rajoy in parliament in Madrid (12 Sept 2012) The Spanish prime minister is desperate to avoid new EU austerity conditions

Some of Europe's troubled economies will focus this week on their budgets and spending plans.

Spain takes centre stage. Later this week, on Thursday, it will approve another tough budget. The details will have been negotiated with the European Commission.

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Spain is caught in the trap of consumers spending less and sales tax revenues falling”

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The question is whether this budget is intended to prepare the way for a full-scale bailout.

There is widespread speculation that Madrid will shortly put up its hand and admit it wants help.

If that happens the government of Mariano Rajoy is desperate to avoid having to accept new austerity conditions forced on it by the EU and the IMF.

So the plan is to adopt new measures first and then possibly ask for funding. It can then be presented as aid without conditions.

France backs early help for Spain. The Germans do not.

German Finance Minister Wolfgang Schaeuble insists that Spain does not need additional aid beyond the 100bn euros (£79bn; $129bn) already promised for Spanish banks.

That may reflect the fact that the German parliament would have to approve any new rescue programme - and that may prove difficult.

A trader at a Spanish bond auction (20 Sept 2012) Expectation of a bailout has helped keep Spain's borrowing costs down recently

What may focus minds are strong hints that Spain may once again fail to meet its targets for cutting its deficit.

It has already been revised upwards once to 6.3%. Even that figure may be beyond reach.

"Nobody now believes it will be able to fulfil its targets," said Alberto Roldan from Spanish brokerage Inverseguros.

The country is caught in the trap of consumers spending less and sales tax revenues falling.

Now the mood in Brussels is to fudge the fiscal targets. Greece is likely to be offered more time. Portugal has had its targets eased. Spain could yet follow but some in Brussels would prefer to see the country in a bailout programme.

The next few weeks should answer the question of whether the eurozone's fourth largest economy will ask for a bailout, accept a monitoring programme from the EU/IMF, and trigger the ECB buying Spanish bonds on the secondary market.

That expectation has helped keep Spain's borrowing costs down in recent weeks. Uncertainty could trouble the markets once again.

General strike
An Athens metro station during a workers' strike on 20 Sept 2012 Greece will hold its first general strike since Antonis Samaras became leader

The Greek government will try again to reach agreement on savings of 13.5bn euros. If the governing coalition can agree on where the axe will fall then it should open the door to it receiving its next loan of 31bn euros.

Here's the test. The cuts, which will fall mainly on the public sector, will be challenged on the streets.

On Wednesday, the first general strike has been called since Antonis Samaras became prime minister. It will reveal just how prepared the Greeks are to accept more austerity.

With Greece too there is a mood to offer concessions as long as it does not involve more money.

French Prime Minister Jean Marc Ayrault said over the weekend that "the answer must not be a Greek exit from the eurozone".

"We can already offer it more time - on the condition that Greece is sincere in its commitment to reform."

Sincerity, in the past, would not have been enough to have impressed the Germans.

Then, on Friday, France will finally reveal how it intends to reduce its deficit to 3% by next year.

More of that later in the week but, even though the eurozone has been in calmer waters in recent weeks, these remain difficult times for many eurozone governments either in recession or stagnating.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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UK politicians react angrily to news that a £1.7bn (€2.1bn) surcharge will have to be paid to the EU by 1 December, while France and Germany get a rebate.

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  • rate this

    Comment number 90.

    77 Pavlos

    "This must be a joke, right? China citizens reaping the rewards?"

    No country can achieve super power status without the people actively benefiting and co-operating in its success. Those old enough will remember the drab existence of the Chinese in the recent past and their achievement is due to the people being given incentives to better themselves. The transformation is amazing.

  • rate this

    Comment number 89.

    80 EU

    "EU"-lovers like to claim that the EU brings peace in Europe. The clashes in Spaion suggest that it doesn't"

    Well at least the protesters in Spain haven't yet set the city on fire or gone on a looting spree as they did during the London riots last year.

    What do you think that was about? It certainly had nothing to do with the EU. Do you think we shall see more like that as well?

  • rate this

    Comment number 88.

    #87 austriacus

    --If the UK gives up on CAP -- then funds will be given directly to the ´landowners´ --they won´t lose out.

    --Interesting Spiegel article (in German) --suggesting another Greek ´fudge´ to get Merkel over to the next election.

    -Greece doesn´t realize she is their best ally --only others can see it.

  • rate this

    Comment number 87.

    I see no problem in agreeing to disagree.

    Some countries will end up in a federation ( with Germany and France being the heavyweights ) and other will form a more individualistic club of countries which avoid integration, cohesion, CAP and CFP and concentrate on free trade only ( with Britain bearing the standard ).

    In hindsight, de Gaulle was a crafty clairvoyant.

  • rate this

    Comment number 86.

    # 85 Pavlos

    I realize how desperate many must feel--but unless Greeks themselves face up to the realities of their society--nothing can ever change.

    One gets the idea that the massive spending spree has the Civil War at its roots. Give to everybody what they want--and the wealthy and powerful take the rest (or vice versa)

    -then there MAY be harmony --until the money runs out.

    --it now has.

  • rate this

    Comment number 85.

    #78, QOT

    I'm not saying a junta is the solution!! I'm just trying to give you an indication of how desperate a significant part of the greek population is. 10% have turned to a fascist party, and, hoping I'm wrong, I believe serious political turmoil is not far off.
    Your idea of a full nation enjoying the spoils of war over the poor debtors' dead bodies is way too far from the truth..

  • rate this

    Comment number 84.

    What I would like to know is why Señor Rajoy thinks Spain should get less stiff terms than Greece or Ireland if he requests a bailout. Is Spain so special that it deserves better terms than the others, does it deserve preferential treatment for some reason? Does he really think that he (and Monti) should get, in effect, unlimited support without any conditions or guarantees? No quid pro quo?

  • rate this

    Comment number 83.

    "Whether it is the demand in Catalonia for more autonomy or even independence from Spain, or it is the sudden rise of the neo-fascist Golden Dawn party in Greece, existing political systems are coming under enormous strain.


    That sense of unease is also feeding debates about the structure of the EU itself, "

  • rate this

    Comment number 82.

    80. EUprisoner209456731
    I think you are right.
    The people being ignored by the eurozone are the people.

    When you ignore them, they get angry, as seen in Spain today.

    This of course, cuts no ice with EUphiles. They feel that they know best and their project will see people right in the end.


    If the EU was a patient, it would be off to Zurich for an appointment with Dignitas.

  • rate this

    Comment number 81.

    @70 The USSR wasn't the problem re reunification, neither were US or France- Thatcher was. Mitterrand HOPED Kohl would agree to a monetary union, but was smart enough to realize that once the Wall was down reunification was inevitable, couldn't be stopped. There was no French DEMAND for the euro as condition for French permission, Kohl GAVE the DM away.

  • rate this

    Comment number 80.

    "EU"-lovers like to claim that the "EU" brings peace in Europe. The clashes in Spaion suggests that it doesn't. This might be just the start.

  • rate this

    Comment number 79.

    I have visited China privately twice and

    yes, they work more than us Europeans
    while showing politeness in their language,
    they see us as lazy, more profiting from the
    colonial past than from today's efforts.

    While I do not want a Chinese-style economy here,
    I accept that some truth is in their thoughts.

    It's strange when Europe asks for help from China,
    we should show more self-respect.

  • rate this

    Comment number 78.

    #74 Pavlos

    "Suddenly, a junta doesn't look like a bad idea to quite a lot of greek citizens..."

    A Greek mobilization was called after the Cyprus debacle --cancelled after a couple of days, as the Greek military had sold the weapons --and everybody was sent home.

    --a long forgotten news report (before the internet) --by the BBC and others at the time.

  • rate this

    Comment number 77.

    #74, QOT
    "--only beneficiaries --with few rejectionists."

    completely wrong, there.. no beneficiaries can exist in such a mess. The few who are involved benefit, all the rest suffer, simple as that.

    #76, Margaret:
    This must be a joke, right? China citizens reaping the rewards? Where, when? And, even if this were true, do you suggest that this is the way to progress? China style? Really?

  • rate this

    Comment number 76.

    68 Pavlos

    "you suggesting that the current inequalities in living stds among people are a result of preferring an easy life?"

    Not all, but in the main - Yes, and bad government.

    I'm not sure why you mention China which at long last seems to have found a way for its citizens to reap the reward for their hard work. Their people had been exploited for centuries, both at home and abroad.

  • rate this

    Comment number 75.

    #74 Pavlos

    "To cut a long story short, no, there are not 11 million thieves in Greece. "

    --only beneficiaries --with few rejectionists.

    "Suddenly, a junta doesn't look like a bad idea to quite a lot of greek citizens..."

    --depends on which side of the Civil War they were (and still are) on.

  • rate this

    Comment number 74.

    To cut a long story short, no, there are not 11 million thieves in Greece. 100,000 of them is more than enough to devastate a country.
    At the moment, the choices available are: the two parties responsible for all this, a third party that seems to be walking in dreamland, and two extremist parties.
    Suddenly, a junta doesn't look like a bad idea to quite a lot of greek citizens...

  • rate this

    Comment number 73.

    #71 austriacus

    hahaha... well said, I'll have to grant you that..

    PROSPECTIVE tax money..... any better?

  • rate this

    Comment number 72.

    #66 Pavlos

    "There's ample evidence to the contrary. How else would you describe a drop of ~40% in the combined votes of the top two parties in the last election?"

    -- Syriza offered a bigger ´free lunch´

    --I presume no Greek sources are required ?

  • rate this

    Comment number 71.

    "As for the comment about poor Africans, let's start by removing some West-backed dictators before using Greek tax money, ok?"

    I apologize in advance, but I cannot resist:

    Greek tax money?


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