Spain heading for European bailout

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By Andrew Redmond Barr

A “crisis budget” has been set out by the Spanish Government for 2013 as the country edges towards the prospect of financial bailout.

Deputy Prime Minister Soraya Saenz de Santamaria called it “a crisis budget designed to exit the crisis”.

The budget was announced following follows two days of violent protest in central Madrid where the public gathered in large numbers to speak out against cuts. Some protestors even made attempts to enter the Spanish parliament building but were fired at by police with rubber bullets.

Twenty-six people were arrested and sixty-four others were injured, sixteen of which required medical attention.

Unemployment rates in Spain especially among the young are already dangerously high at a record 50 per cent.

Amongst the savings laid out in the 2013 budget planned to reduce the country’s deficit are a 20 per cent tax on lottery winners, a cut in ministerial spending and a freeze in public sector pay.

Traders and investors are reportedly encouraged by the increase in austerity as a sign that Spain is willing to take action and take “necessary” steps towards economic stability.

The budget has not brought optimism to many others who see it as a stepping stone towards European bailout.

“This is the fourth or fifth round of belt tightening that we’ve seen,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy. He described the austerity announcements as “firing the initial salvo” towards a bailout.

A recently monthly report published by the Bank of Spain was blunt about the severity of the country’s economic performance. It read: “Available data for the third quarter of the year suggest output continued to fall at a significant pace, in an environment in which financial tension remained at very high levels.”

The prospects of a bailout were confirmed on Wednesday when Prime Minister Mariano Rajoy told the Wall Street Journal that he would “100 per cent” ask for a bailout if borrowing costs were “too high for too long”.

Meanwhile, Catalonia, the wealthiest region of Spain, has passed approval for an independence referendum through its autonomous parliament, despite such a move being considered illegal by the Spanish Government.

84 Catalan parliamentarians voted ‘Yes’, 25 abstained and 21 voted ‘No’.

It is believed that Catalans contribute around $20billion more per year to Madrid than they receive back in public spending. It is expected that Spain would lose 20 per cent of its economy as a result of Catalan independence, a prospect that has lead Spanish Deputy Prime Minister Soraya Saenz to warn that the Madrid government would prevent any attempted referendum.