Spain budget imposes further austerity measures

 

Deputy Prime Minister Soraya Saenz de Santamaria on Spain's 2013 budget

Spain has set out its austerity budget for 2013, with new spending cuts but protection for pensions, amid a shrinking economy and 25% unemployment.

Deputy Prime Minister Soraya Saenz de Santamaria called it "a crisis budget designed to exit the crisis".

The new programme of savings, tax rises and structural reforms will be overseen by an new budget authority.

Expectations are growing that Spain will seek a financial bailout from its eurozone partners.

On Friday, results of a stress test on Spain's banks are due to be released.

Revenue surprise

Among the key points presented were:

  • a 12% average cut in ministerial spending
  • a freeze in public sector pay for the third consecutive year
  • a new independent authority to monitor government finances
  • an increase in pensions funded by drawing on 3bn euros of reserves
  • a new 20% tax on lottery wins above 2,500 euros (£2,000; $3,200)
  • a new car scrappage scheme

Ms Saenz de Santamaria said that 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.

Individual pension payments would increase by 1% next year, the government said, while the overall pension budget would rise by 4%.

Spending cuts would reduce the deficit by 0.77% of GDP in 2013, while revenue adjustments would yield 0.56%.

The government expects the deficit this year to come to 6.3% of GDP, although many analysts expect this target to be overshot.

However, the government said that tax revenues were proving to be higher than budgeted for this year, and were expected to increase by a further 3.8% in 2013.

The deputy prime minister also said that the government would introduce 43 new laws to reform the country's economy.

The reforms went further than what was required by Brussels, according to Economic Affairs Commissioner Olli Rehn.

"I particularly welcome the ambitious plans to establish an independent fiscal council, to further liberalise professional services, and to effectively reduce the fragmentation of the internal market in Spain," Mr Rehn said.

Market rebound

Meanwhile, Castile La Mancha has become the fifth of Spain's 17 regional governments to say that it will draw on a rescue fund set up by Madrid.

The central Spanish region said it would request 848m euros from the 18bn-euro Regional Liquidity Fund, joining Valencia, Murcia and Catalonia, who have collectively requested 3bn euros, and Andalucia, which has yet to specify how much it needs.

The Spanish stock exchange's Ibex index held steady on Thursday, ending the day down just 0.15%, having lost 3.9% the previous day.

Other European stock markets experienced modest rebounds of about 0.25%.

Stocks fell sharply on Wednesday, as markets were rattled by violent protests in Madrid and Athens, as well as a statement from the Spanish central bank that the country's economy had continued to shrink in the third quarter of the year.

However, the more optimistic sentiment was boosted on Thursday when the Greek finance minister, Yannis Stournaras, said that a "basic agreement" had been reached with lenders on the austerity measures required for the release of Greece's next tranche of bailout money.

On the bond markets, the Spanish government's long-term cost of borrowing fell slightly, to an implied interest rate of just under 6% for 10-year debt.

The 10-year rate had risen by a quarter percentage point on Wednesday, as lenders' fears over the government's ability to repay its debts, or stay within the euro, resurfaced.

The BBC's Tom Burridge, in Madrid, says that it seems investors are losing patience.

Spain will hope that Thursday's austerity measures will mean fewer economic conditions if it asks for a second bailout.

'Significant' fall

Prime Minister Mariano Rajoy fuelled expectations that Spain would ask for a bailout when he told the Wall Street Journal on Wednesday that if borrowing costs were "too high for too long", then "I can assure you 100% that I would ask for this bailout".

At the press conference to present the new budget, economy minister Luis de Guindos said the government was still analysing the conditions of the bailout, which would trigger purchases of Spanish government debt by the European Central Bank.

The economic situation remains grim, with comments from the central bank on Wednesday indicating that the country's recession deepened in the last three months.

"Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels," the Bank of Spain said in a monthly report.

Last week, Spain's second biggest bank, BBVA, estimated that up to another 60bn euros (£48bn; $78bn) will be needed to bail out the banking sector.

About 20bn euros has already been allocated to troubled banks.

Spain, the eurozone's fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country's property bubble.

But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.

 

More on This Story

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • rate this
    +1

    Comment number 604.

    We are seeing a global elite increasing their wealth and power through big business and political decisions.

    Look at the prices in Greece, Spain, Italy, Ireland, Portugal. As a traveller to these places 'pre-euro' I can assure you that people, including the natives, got much more for their money & labour. Not the case now. Who benefits: the global elite - via banks and big business.

  • rate this
    +2

    Comment number 603.

    the architects of the Euro are responsible for almost all of this - hardship, mass unemployment etc.

    They should be publically identified, villified and sacked from any role within Europe.

    Those countries that must, should:

    default, leave euro & revert to national currency, devalue

    This problem cannot be fixed by digging a deeper hole.

    Do it now.

  • rate this
    +3

    Comment number 602.

    I don't know much about politics, or economics. I've never studied socialism, or capitalism, or any of the other 'isms'. I don't particularly support left or right. I've just got on with life. But one thing I have noticed, having lived through several changes of government, is that I'm always a lot poorer when a Tory is in No.10.

  • rate this
    -2

    Comment number 601.

    Spain and other countries in a similar position should learn from the UK's example - a radical cut back of armed forces and all of their associated overheads. How Spain can afford to maintain, if not, increase the size of its navy at this time I do not understand.

  • rate this
    -6

    Comment number 600.

    Government spending in a recession needs to be high to help provide employment, in turn increasing consumer demand and turning a recession around.

    Austerity in a recession triggers a vicious cycle, encouraging the shedding of staff in all sectors, increasing unemployment. This stalls growth and brings on the need for more austerity, repeated until the pro-austerity government is voted out.

  • rate this
    +1

    Comment number 599.

    This could be the least of Spain's problems. Spain could cease to be erm... Spain

    http://www.economist.com/comment/1658466#comment-1658466

  • rate this
    +4

    Comment number 598.

    589 Ex Tory Voter

    Pension and other funds should have the right to take traders in the 'markets' to the Courts for miss-selling. This ludricous situation where the 'markets' are completely free from redress has to end. And, all stockbrokers should have unlimited liability for their traders actions - remove limited liability protection, which would stamp out 'ponzi' schemes and insider trading.

  • rate this
    0

    Comment number 597.

    Austerity to recover from a calculus miscalculation that involved NO MONEY, GOLD or PROPERTY
    Just a calculated creation by the banks that involved them receiving billions in profits that never existed until the AAA rated Mortgages sold defaulted & the Insurance that never was did not pay out!
    This is insanity and I hope I am a fool to think all this suffering was created by a calculus WW PONZI !!

  • rate this
    -2

    Comment number 596.

    May we please have the Olympic Games back? I liked us much more then.

  • rate this
    +2

    Comment number 595.

    @582 aphoristic "ALL ASSETS of all banks and similar institutions that got us in to this mess should be seized to bail out the people!"

    And there I was thinking that Stalin was dead. I guess I was wrong. That totalitarian dictator is still very much alive, much to the detriment of the world.

  • rate this
    0

    Comment number 594.

    I found a get rich quick scheme

    http://www.bbc.co.uk/news/world-asia-19742278

  • rate this
    -1

    Comment number 593.

    The common problem to all countries suffering from economic contraction, including the UK is the capitalist system itself. Whether inside or outside the EU will make no difference,the bosses will still attempt to make the workers etc, pay for the contradictions of their decrepit system. A mass party campaigning for socialism is the only way forward :The current parties do not do that, anywhere.

  • rate this
    +1

    Comment number 592.

    I heard a comment this morning on wake up to money, where ,a so called expert economist, said, the austerity methods would work ,if only democracy never got in the way. well that said it all....

  • rate this
    -5

    Comment number 591.

    The EuroTitanic luches a bit more as she fills up with debt & taxes.
    A sociaist ship can never float for long.

    Poor guys, I just hope we don't repeat their mistakes of QE, high taxes, socialised Government programs, and bank bailouts over here. Oh wait!... We are :o

  • rate this
    +3

    Comment number 590.

    the sooner numpty politicians accept that the most egalitarian societies are always the most successful and productive the better..but as long as we are led by an 'elite' schooled in the culture of elitism then nothing will change..all those involved with occupy..take your tents...exit the system and build anew..we will achieve nothing as long as unevolved muppets are pulling the strings

  • rate this
    +5

    Comment number 589.

    "572.Tanglewood

    The answer to which should be determined solely by the market, "

    That has failed. Just look at the number of incompetents who have destroyed their businesses (mostly banks) yet demanded lottery-winner size wages not through their successes but just because "they are so special". They made themselves unaccountable, to the market or anything else, a now proven recipe for disaster.

  • rate this
    +3

    Comment number 588.

    572.Tanglewood
    The answer to which should be determined solely by the market, and definitely not by government-imposed social engineering, union bullying, or punitive taxation.
    I could not disagree with you more, it is because the rich have taken most of the money, that the rest of us have little and not enough to live on. This means that we cannot buy the goods so hey the country goes down.

  • rate this
    +1

    Comment number 587.

    @171 Dragonwight.

    ''What i want to know is who is getting all this interest on this debt''

    The money is created with debt. A country's central bank (Always privately owned, never by the state) prints money, then lends it to the country with interest.

    Therefore, for every pound there is interest. Meaning there will forever be more debt than money to pay. Hence our slavery :)

  • rate this
    +1

    Comment number 586.

    Greece then Ireland then Portugal then Spain then Italy.

    Time to pay for the excess government spending of the past 40 years on all those shiny public services beloved by the masses.

    It is not the people's fault but the politicans who have presided over the biggest debt-laden spending spree in history.

    France will be next.

  • rate this
    0

    Comment number 585.

    How does the Spanish government (and the rest of the Western world for that matter) expect to stoke growth and recover extra taxes when the austerity measures it is forcing on their populations on the back of reckless Government neoliberalistic gambling has ceased any sort of demand?

    There's no end insight to the financial crisis. A new type of politics must emerge from the failure of the market.

 

Page 19 of 49

 

More Business stories

RSS

Features

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.