Spain Could Relaunch Debt Crisis: Monti

Country struggles with budget cuts as Europe looks to fortify its firewall

As euro area finance ministers gather this week to work out the details on a plan to bolster the area’s financial rescue mechanism, Prime Minister Mario Monti of Italy warned that Spain could set off the euro zone debt crisis all over again.

Bloomberg reported Monday that Monti, who has been negotiating in Italy to rein in his own country’s financial woes, called attention to Spain and its fight to contain its debt crisis. At a weekend conference in Cernobbio, Italy, he was quoted saying, “It doesn’t take much to recreate risks of contagion.”

While Monti had words of praise for Spain’s efforts to relax its work regulations—something he is struggling with in Italy—he criticized its budget-cutting efforts, saying that it “hasn’t paid enough attention to its public accounts.”

After Greece managed to satisfy the troika of the European Union, European Central Bank and International Monetary Fund, officials and win a second bailout package, and after the ECB flooded the region with cheap loans, the debt crisis seemed to back off just a bit. However, Spain and Italy are still struggling.

Finance ministers for the region will meet in Copenhagen on March 30 to discuss terms of an arrangement to boost its financial firewall. Still to be settled are the terms under which the 500-billion-euro ($664 billion) cap on bailout funding can be raised. One option under discussion is to combine the existing European Financial Stability Facility and the European Stability Mechanism, soon to become operational, and allow the funds from the EFSF to roll over into the new combined device. The German chancellor and finance minister recently set aside their opposition to combining the two funds.

March 30 is significant for another reason: Prime Minister Mariano Rajoy of Spain is scheduled to present his 2012 budget on that date—one day after a major strike in protest of austerity is expected to cover the nation as unions protest employment law changes. Rajoy’s popularity at the polls is plummeting as he seeks to push through austerity measures in an effort to cut the nation’s debt; if he loses too much support, the measures too will fail.

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