• Spain announces 2013 austerity budget

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    • Published in Business

    Spain's eurozone partners have agreed to provide a rescue loan of up to 100 billion euros.

    Squeezed by financial markets and denounced in the streets, Spain s government will adopt on Thursday a 2013 austerity budget which could be a precursor to a full-blown bailout.

     The final step before a rescue is likely to come a day later, analysts say, when Madrid unveils an independent audit of its limping banks to determine how much capital they need.

     Spain s eurozone partners have agreed to provide a rescue loan of up to 100 billion euros ($125 billion) to help the banks recover from bad loans built up after a 2008 property crash. But Madrid insists 60 billion euros will be enough.

     Once that matter is dealt with, the eurozone s fourth-largest economy will have all the data it requires to seek a broader, sovereign rescue from the eurzone s bailout funds.

     

    If Spain bends to the will of the markets and some of its eurozone partners by formally requesting the bailout, it would trigger a bond-buying programme for troubled states outlined by the European Central Bank on September 6. That would have the effect of curbing Spain s borrowing costs.

     

    Before making the leap, however, Prime Minister Mariano Rajoy wants to know what the conditions would be. The conservative leader likely wanted to make progress on the budget for next year, also, before making the request.

     

    The basic outline for the budget has been known since July: the plan to be adopted by the cabinet on Thursday is expected to enact spending cuts and tax increases worth a combined 39 billion euros.

     

    The government aims to claw back a total of more than 150 billion euros between 2012 and 2014: 62 billion euros this year, 39 billion euros next year and 50 billion euros in 2014.

     

    On the austerity menu for 2013: an increase in sales tax and other taxes is expected to rake in 15 billion euros and nearly seven billion euros will be found from cuts in the regions, which manage health and education.

     

    Other savings come from lowering unemployment benefits and social assistance, as well as a freeze in public sector hiring. But Spain will probably have to go further, said Juan Ignacio Conde Ruiz, deputy director of the Foundation of Applied Economic Studies (FEDEA).

     

    "To be credible with the markets, which is the government s ultimate goal, it would seem hard to avoid touching retirement pensions, which account for 25 percent of total spending," he said.

     

    Rajoy s election campaign promise to maintain pensions by inflation would cost 3.0-3.5 billion euros, Conde Ruiz said.

     

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