Spain goes for more austerity amid turmoil and rating downgrade
by Daniel Mason
The depth of Spain's political and economic turmoil was laid bare yesterday when the country's latest austerity budget – which had already provoked pre-emptive protests in Madrid earlier in the week – was followed by a credit rating downgrade and a vote in Catalonia's parliament in favour of holding a referendum on independence.
Spain has taken centre-stage in the eurozone crisis and the measures revealed in the 2013 budget were closely watched. They included a 12 per cent average reduction in ministerial spending, the extension of a public sector pay freeze for a third consecutive year, and a new 20 per cent tax on lottery wins above €2,500. The government said it would draw on €3bn of reserves to shore up pensions, and introduce a car scrappage scheme.
It was also announced that 43 new laws would be passed to extend the structural reforms already underway, and an independent body set up to monitor the government's finances. It is all part of Spain's attempt to meet deficit target of 4.5 per cent of gross domestic product next year – down from almost 9 per cent last year and a target of 6.3 per cent this year. The country remains in recession and unemployment is close to 25 per cent but the government said the tax take was forecast to rise, partly as a result of an increase in sales tax.
The austerity measures, preceded by protests in Madrid that turned violent earlier this week, are widely seen as designed to anticipate any demands for further fiscal consolidation that the European Union might make should Spain decide to ask for a full sovereign bail-out – on top of the €100bn made available by the eurozone to shore up Spanish banks. European Commission vice-president Olli Rehn said the reform plan set out yesterday by the government went beyond even the EU's recommendations.
"Spain is facing important challenges to correct very sizeable macroeconomic imbalances which require a comprehensive policy response," Rehn said. "The measures announced are a further important step towards addressing these challenges." However, Spain saw its credit rating slashed from CC+ to CC by Egan-Jones Ratings, the seventh time the company has downgraded the country this year. A review of Spain's credit standing by one of the big three rating agencies, Moody's is due by the end of this month amid speculation that it too could cut the country to junk status. In addition the results of a government evaluation of how much of the €100bn bail-out the banks will actually need is expected today.
Prime Minister Mariano Rajoy's problems are not only economic but also political. The Catalan leader, Artur Mas, earlier this week called elections for November 25, only half way through his mandate, after failing to win new tax raising powers for the regional government. Despite accounting for a fifth of Spain's economic output, Catalonia is among a number of Spanish regions to have requested aid from Madrid's new €18bn dedicated fund.
But calls for independence have grown louder, with a demonstration earlier this month attracting as many as 1.5 million people. Yesterday the Catalan parliament voted in favour of holding a referendum on independence, even as Madrid said it would use its legal powers to prevent such a vote taking place. It means the November elections will themselves be seen by many as a referendum on the independence issue. Recent polls have shown more than half of Catalan's want to split from Spain.
Austerity: the damage is already done
The experts who advocated austerity may finally be realising the true effects of their policy – but acknowledging past error is not something that politicians are prone to do, writes our secret columnist in Brussels
It is absolutely false and impossible that the demonstration in favour of the independence was attended by a million and a half people. It that had been the case, given the extension of the area occupied by the demonstration, there would have been some 20 people per square metre.
Stop making false anti-Spanish allegations. Of course, you forget many of the key details of this story such as the strong warnings against the independence by all business and major economic forces and enterprises in Catalonia.
Stop using Anglo-Saxon credit ratings instead of actual economic data to attack Spain. Public spending reductions is what the doctor ordered and our economy is doing fairly well considering that these public spending reductions are being conducted in the middle of a recession.
Still our public debt is much smaller than the British and our ability to pay back lenders remains potentially higher because we still have a 25 per cent of the underground economy that could be taxed with some additional measures.
The demonstrations in Madrid were attended by a few thousand people that came from all over the country and their slogans, and proposals, show how they are some nobodies from the fringe and dellusional extreme left groups. The biggest demonstration always are the elections and Spanish leftist groups have proven their eagerness to challenge actual results in the streets by means of senseless revolts and tantrums time and time again for over a century. You are trying to break the euro to give a relative advantage to your financial centres.
Daniel A. Jaimen Navarrete - Madrid
Mr Jaimen, the number of 1.5 million protesters in Barcelona was given by your government. Were you personally in Barcelona to count the protesters? Most likely, you were sitting in your sofa, watching some midnight TV at around 600 km from Catalonia.
Nonetheless, I would not care the least about if it was 500, one million or five.
But the debate of the independence of Catalonia has reached the next level, and it is the trending topic of the moment in Spain, isn't it? Even at 600km from Catalonia, where you say you are from.
I told you, Catalonia will secede in front of your very eyes, and Spain will be able to do nothing against the democratic power of Catalan people.
What can you oppose against democratic will? What type of coercion will be applicable, given that a majority of Catalans will not accept the Spanish legality any longer, and therefore will not be subject to Spanish law?
I know there have been threats - from retired colonels and politicians talking about sending the armies into Catalonia. Is that the type of "coercion" you were talking about? I wonder if by sending the Spanish armies against Catalonia will be rather counterproductive for your interests, and perhaps will be Spain the country expelled from the EU.
Jordi Margalef - Worthing, UK