Spanish ministers unveil austerity budget for 2013

Julian Harris
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SPAIN’S government announced an austerity budget for 2013, yesterday, in a move seen as potentially paving the way for a full bailout from international lenders.

Amidst strong protests in Madrid over the proposed cuts, deputy prime minister Soraya Saenz de Santamaria insisted that 64 per cent of the budget is still devoted to social spending.

Under the plans, reductions in government spending would amount to 0.77 per cent of GDP in 2013, with 8.9 per cent shaved off ministerial budgets.

The central government also sees its revenue increasing by four per cent. A combination of lower spending and higher tax revenue could knock €40bn off the indebted state’s annual deficit, Prime Minister Mariano Rajoy’s government hopes.

“This is a crisis budget aimed at emerging from the crisis… In this budget there is a larger adjustment of spending than revenue,” Rajoy’s deputy De Santamaria said.

The budget is believed to be even tighter than Brussels would have insisted as a condition of a bailout, leading to speculation that an official rescue package could be getting nearer.

Spain is in talks with the European Union over a possible aid package, with Rajoy admitting this week that he will seek help if borrowing costs remain unacceptably high.

A full bailout would open the door for the European Central Bank (ECB) to re-start its bond-buying programme and mitigate upward pressures on Spanish yields.

The Spanish budget announcement, made towards the end of the trading day in London, failed to disturb markets. Yet the euro recovered some ground after the statement, reaching $1.291 last night after touching $1.284 earlier on.

The single currency’s prospects were also boosted by German President Joachim Gauck signing the bill that ratifies the core Eurozone state’s involvement in the new bailout mechanism – the European Stability Mechanism (ESM).

Meanwhile an Italian bond auction saw five-year yields fall to 4.09 per cent, their lowest since May 2011. And yields fell last night as technocrat Prime Minister Mario Monti said he could lead the government again if next year elections are inconclusive.