17 September 2012

WSJ: Spain is reluctant to make more cuts

Spain's government is facing an autumn of angry street protests by a recession-weary public, even after telling its European partners that its next steps to overhaul the economy would avoid further cuts in public spending.

Finance Minister Luis de Guindos laid out Spain's position during weekend talks in Cyprus with his European colleagues, as tens of thousands of singing, chanting Spaniards converged Saturday on Madrid from all over the country to demand a popular referendum on the government's crisis measures.

Spaniards are already reeling from a July round of cuts that eliminated Christmas bonus pay for public employees, lowered unemployment benefits and raised sales taxes, bringing new pain to wage earners hit by public sector pay reductions two years ago.

In Spain, the government is treading cautiously, aware of the risks of inflaming public sentiment. As Saturday's rally was starting in Madrid, Mr de Guindos said the government "is aware of the sacrifices it is asking of Spanish society" but added that they are "absolutely necessary to overcome a difficult situation and lay the foundation of a recovery". But he appeared to draw a line against new spending cuts.

"Spain's existing budget measures are significant and ambitious enough", he said, to ensure that Spain meets a European Union-mandated budget-deficit target of 3 per cent of its gross domestic product by 2014. Last year's deficit was 9 per cent of GDP. He gave no details of the new overhauls Spain plans to unveil by the end of this month but said they will follow EU policy recommendations. Those suggestions have included raising the retirement age and setting up an independent Spanish fiscal agency to monitor the budget.

Although Spain is expected to need a bailout, Mr Rajoy's government hasn't yet decided whether to ask for one. But European officials said it had begun exploratory talks to find out what economic and budget overhauls would be required in exchange for a precautionary line of credit from eurozone bailout funds.

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© Wall Street Journal