10 April 2012

Bloomberg: Spain confronts crisis threat as Rajoy seeks deficit cuts

Spanish Prime Minister, Mariano Rajoy, stepped up efforts to reassure investors he can bring the country's deficit under control, as his government fights to avoid becoming the fourth euro area member to require a bailout.

Rajoy met with his health and education ministers to discuss cuts of more than €10 billion ($13 billion) as the government reiterated its pledge to reduce the deficit to 3 per cent of gross domestic product next year. That includes plans to accelerate the sale of stakes in lenders under government administration, according to an emailed statement.

Rajoy will spell out his government’s planned reforms to a meeting of People’s Party parliamentary deputies. Health and education, the areas that Rajoy said he would cut, are controlled by regional administrations, and the premier will meet with Esperanza Aguirre, the head of the Madrid region.

Charles Dallara, head of the IIF, who negotiated a Greek debt swap on behalf of private bondholders, said Europe is focusing too much on austerity, threatening its economic recovery. “We are calling for a rebalancing of some aspects of the current strategy in Europe to ensure that there is not an excess of near-term austerity. “

Spain’s central government is seeking to tighten control on spending by the nation’s autonomous regions, including health care and education. In the “coming days” it will coordinate with the regions to adapt budgets to the goal of reducing their deficits to 1.5 per cent of GDP this year, the government said in its statement yesterday.

Investor concerns about recession in Europe, the “vicious circle” it might cause, and also the state of Spanish regional government finances are behind the surge in Spain’s borrowing costs, Economy Minister Luis de Guindos said.

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