September 27, 2012

Spain Set to Cut Budget Amid Demonstrations

Move intended to avoid conditions on bank bailout

Spaniards protested near Parliament in Madrid on Tuesday. (Photo: AP) Spaniards protested near Parliament in Madrid on Tuesday. (Photo: AP)

Anti-austerity demonstrators extended their protests into the night as lawmakers prepared to push through additional budget cuts and economic changes that Prime Minister Mariano Rajoy hoped would enable Spain to avoid conditions imposed on a possible bank bailout.

Reuters reported Thursday that as the Spanish cabinet gathered to approve the measures, expected to be announced later in the day, Rajoy was stalling on requesting aid for Spanish banks in the hope that the new measures would forestall any insistence on conditions that might otherwise be attached to the money. His government has been negotiating with Brussels on a new round of bond buying aimed at controlling soaring interest rates that have hit not just Spain but Italy as well.

On Wednesday night, demonstrators were demanding Rajoy’s resignation. His popularity and that of his government have sunk with each new accession to budgetary cuts and other requirements imposed in the hope of controlling Spain’s rising borrowing costs.

Among the measures expected in the announcement later Thursday were a new tax oversight body, which has been recommended by Brussels; restrictions on early retirement, new taxes on greenhouse gas emissions and stock transactions, and the elimination of some tax exemptions. Unions in Spain also said they expected wage freezes to be put in place, and Spanish media said that some government ministries could see budget cuts as deep as 40%.

Even if the Spanish parliament approves all the measures, one official, who asked not to be named, said in the report that they might not reassure markets enough to help. He was quoted saying, “On paper they can make it all add up, but it will be hard to make the budget credible given all the reasonable doubts on the deficit target. It will be really tough to make the markets buy it."

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