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Tuesday, 11 May 2021

Spain prepares more austerity, protesters clash with police

Reuters , Tuesday 25 Sep 2012
Riot police clash with protesters close to Spain's Parliament during a demostration in Madrid (Photo: Reuters)

Protesters clashed with police in Spain's capital on Tuesday as the government prepares a new round of unpopular austerity measures for the 2013 budget that will be announced on Thursday.
Thousands gathered in Neptune plaza where they planned to form a human chain around parliament, surrounded by barricades, police trucks and more than 1,500 police in riot gear.

Television images showed the police beating some protesters with truncheons, in a brief, tense stand-off one block from parliament as police trucks tried to divide the crowd in two.

The protest, promoted over the Internet by different activist groups, was younger and more rowdy than recent marches called by labour unions. Protesters said they were fed up with cuts to public salaries and health and education.

"My annual salary has dropped by 8000 euros and if it falls much further I won't be able to make ends meet," said Luis Rodriguez, 36, a firefighter who joined the protest. He said he is considering leaving Spain to find a better quality of life.

With this year's budget deficit target looking untenable, the conservative government is now looking at such things as cuts in inflation-linked pensions, taxes on stock transactions, "green taxes" on emissions or eliminating tax breaks.

The 2013 budget is the second one conservative Prime Minister Mariano Rajoy has had to pass since he took office in December. Spain must persuade its European partners that it can cut the budget shortfall by more than 60 billion euros by 2014.

Rajoy has already passed spending cuts and tax hikes worth slightly more than that over the next two years, but half-year figures show the 2012 deficit target slipping from view as tax income forecasts will not be hit due to economic contraction.

Spain is at the centre of the euro zone debt crisis on concerns the government cannot control its finances and those of highly indebted regions, bitten by a second recession since 2009 which has put one in four workers out of a job.

On the regional front, Catalonia, which generates about 20 percent of the national output, announced on Tuesday it would hold early elections on November 25 after its call for more tax autonomy was rejected last week by Rajoy.

Political uncertainty in cash-strapped Catalonia, along with an announcement from southern region Andalucia it might seek a 4.9 billion euros credit line from the central government, will pile more pressure on Madrid to seek European aid.

Rajoy is holding back from applying for help, which would activate a European Central Bank bond-buying programme and bring down Spain's punishing debt premiums.

With the threat of the plan alone reducing 10-year yields by around 2 percentage points, the cautious leader, known for keeping his cards close to his chest, is playing for time. Rajoy says he is mulling the conditions of a bailout application, but suspicion that he may wait until after regional elections on Oct. 21 pushed short-term yields higher at auction on Tuesday.

The government is also expected on Thursday or Friday to set a fresh timetable for economic reforms, seen as an attempt to pre-empt strict EU-imposed conditions for aid, and help the conservatives save face at home.

"Let us in, we want to evict you," protesters chanted outside parliament. Evictions have soared in Spain as thousands of people have defaulted on bank loans.

Demonstrators said they were angry that the state has poured funds into crumbled banks while it is cutting social benefits. "We're protesting against the cuts. I've had to give up my apartment," said Ondina, a 30-year-old fine arts graduate who is without a job. She said she can't survive on an unemployment benefit of 260 euros ($340) a month.

Half-year deficit data indicate national accounts are already on a slope that will drive Spain into a bailout. The deficit to end-June stands at over 4.3 percent of gross domestic product, including transfers to bailed out banks, making meeting the 6.3 percent target by the end of the year almost impossible.

On Tuesday, the treasury ministry said the central government deficit to end-August had reached 4.77 percent of GDP, already above its year-end target of 4.5 percent of GDP.

"Its going to be difficult keeping the deficit to around 2 percent in the second half, when the first half was closer to 4 percent, especially since traditionally, the second half deficit is higher than the first," said Juan Ignacio Conde-Ruiz, economist at Madrid's Complutense University.

For 2012, the measures aim to reap savings of over 13 billion euros, but economists see the deficit missing the target by almost 1 percentage points implies further saving needs of up to 10 billion euros for this year alone.

Rajoy has been careful to highlight the importance of next year's deficit target of 4.5 percent of GDP though any shortfall this year will weigh on 2013's accounts.

After slashing civil servants' wages, raising value added tax by 3 percentage points - the main VAT has gone from 16 percent to 21 percent since 2010 - and cutting health and education spending, Rajoy is running out of options.

More than 60 percent of government spending goes to pensions, unemployment benefits and servicing debt, making further cuts on the revenue side difficult without hitting 6 million jobless people. (0.7743 euros)

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