Spain unveils lean budget with reforms

SPAIN’S GOVERNMENT presented a lean budget for 2013 and an ambitious reform programme yesterday amid increasing social unrest and rumours that the country will soon request a full bailout.

Government ministries were among the most affected by the new cuts, with a spending reduction of nearly nine per cent. The government of Mariano Rajoy also promised to present more than 40 reforms over the next six months as it seeks to improve the economy’s competitiveness and impress EU authorities.

Spain is attempting to slash its deficit to meet targets agreed with Brussels. However, a double-dip recession and jobless rate of 25 per cent have hampered its efforts and kept it at the heart of the euro zone debt crisis. Anti-austerity sentiment is running high and street protests earlier this week saw violent scenes in Madrid.

The new plan is seen in Brussels and other European capitals as a precursor to a conditions-based programme to be attached to a likely extension to the European bailout package for Spain’s banks.

European officials say in private that Mr Rajoy will probably have little choice but to seek further bailout aid in the coming weeks to stabilise the country’s finances, something he has resisted for months. The public position, however, is that it remains up his government to decide whether such help is needed.

In spite of Mr Rajoy’s reluctance to apply for more aid, his government would enter a formal programme to trigger bond-buying by the European Central Bank and any recapitalisation of Spain’s stricken banks by the ESM fund.

The new budget plan met a positive reception in Brussels, where some officials were surprised at its scope. “I think we were pleased with how far they went,” said a senior figure.

Olli Rehn, economics commissioner, described the initiative as a “major step” to broaden and deepen economic reform. “This new structural reform plan responds to the country-specific recommendations issued to Spain under the European semester and goes even beyond them in some areas,” Mr Rehn said. “Spain is facing important challenges to correct sizable macroeconomic imbalances which require a comprehensive policy response. The measures announced are a further important step towards addressing these challenges.”