Spain reaching breaking point with another round of crisis cuts

Budget savings worth €40bn to satisfy European partners will fuel growing regional demands for independence


Spain's government yesterday unveiled a new round of spending cuts and tough austerity measures in its 2013 budget, which is expected to pre-empt the conditions its European partners could lay down if the indebted nation becomes the latest eurozone member to request a bailout.

The small print for the 2013 budget will not be revealed until tomorrow, but media estimates said that yesterday's savings and tax hikes would be worth around €40bn, most of it disappearing into debt servicing. Ministries will be asked to cut their budgets by an average of 8.9 per cent. A further €4.3bn will be squeezed out of Spain's beleaguered taxpayers.

"This is a crisis budget aimed at emerging from the crisis... In this budget there is a larger adjustment of spending than revenue," said Deputy Prime Minister Soraya Saenz.

The budget comes barely six months after the government announced the biggest series of austerity cutbacks in the country's modern history for its 2012 budget, axing €27bn. France is also expected to announce a budget today of spending cuts and new taxes.

For Spain's Prime Minister, Mariano Rajoy, this latest round of cuts and tax hikes are considered a necessary evil if he is to convince his European colleagues that he can meet deficit targets and ease the pressure on empty coffers. The measures are designed to ramp up credibility in the eurozone to its highest level possible, prior to an widely anticipated bailout for Spanish banks.

Mr Rajoy and his ruling Partido Popular are scrambling to keep in line with the EU budget deficit of 6.3 per cent of GDP this year and 4.5 per cent of GDP in 2013. Discouragingly, by June Spain's deficit for 2012 had already reached around 4 per cent of GDP. But that is far from his only headache.

In Catalunya, the pro-independence movement is fast gaining momentum, with the regional nationalist government announcing local elections for November and touting the idea of a referendum on sovereignty. Local elections in the Basque Country and Galicia on 20 October could see further gains for nationalists in two areas with longstanding separatist traditions.

These renewed breakaway impulses are linked to the Spanish economy facing its most unrelenting recession since the 1950s. Unemployment is set to drop three-tenths of a per cent in 2013, to 24.3 per cent. There have been protests over the deteriorating quality of life. Thousands of demonstrators this week tried to ring the Houses of Parliament. Dozens of police and demonstrators were injured in clashes.

If the depth of government cuts announced yesterday was grievous enough for Spain's deteriorating economy, then today's news may be even worse when a stress test showing the exact size of Spain's toxic housing debts in its banking system is made public.

Eurozone discontent is also likely to spread to France, where an increasingly unpopular President François Hollande unveils €30bn of increased taxes and spending cuts in an attempt to honour France's deficit-cutting commitments for next year.

Against the background of the resurgent crisis in the eurozone, the Finance Minister, Pierre Moscovici, faces the thankless task of satisfying both the markets and fractious French public opinion that his 2013 budget can deliver Mr Hollande's campaign promise of "growth with discipline".

With the French jobless total already passing three million this week and further, large-scale industrial redundancies threatening, France faces economic stagnation or recession next year.

The broad lines of the new budget have already been revealed. France will, in theory, meet the eurozone target of a 3 per cent of GDP budget deficit next year by raising €20bn in new taxes and cutting €10bn from state spending. The share of GDP "spent" by the state will remain unchanged at 56 per cent.

Faced with a possible revolt on the Left, Mr Moscovici insists that this is not an "austerity" budget. When addressing the international markets, he says that it is the biggest deficit correction attempted by any French government in three decades.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Management Accountant / Analyst (CIMA finalist/newly qualified)

£32000 - £38000 per annum + Benefits: Ashdown Group: Management Accountant / F...

Recruitment Genius: Software Developer - .NET

£27000 - £32000 per annum: Recruitment Genius: This leading provider of a mark...

Recruitment Genius: Help Desk Specialist

£25000 - £35000 per annum: Recruitment Genius: This company provides Reliabili...

Recruitment Genius: Senior Managing Engineer

Negotiable: Recruitment Genius: This leading provider of refrigeration, mechan...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor