Spain braces for further austerity measures

The Spanish government is due to pass its 2013 austerity budget on Thursday, with 39 billion euros ($50bn) in savings, including an anticipated third straight year of salary freezes for civil servants.

Demonstrators faced off against riot police on Wednesday in the Plaza de Neptuno, the same area of the capital Madrid where officers beat protesters and fired rubber bullets to disperse them on Tuesday night.

The protesters shouted “Government resign!” and “We are not afraid”.

On Friday the government is due to unveil an independent audit of its stricken banks to determine how much capital is needed to reinforce them from further shocks.

The budget and audit “could potentially boost sentiment towards Spain and pave the way for a bailout deal to be agreed”, analysts at Capital Economics said in a note.

“But Spain will still be left with a number of other major problems” in meeting its fiscal targets, securing its banks and fielding pressure from Catalonia, they added.

Before deciding whether to ask for a bailout, Rajoy insists on knowing what conditions European authorities would attach, apprehensive of having economic cuts dictated to him.

But the Wall Street Journal on Wednesday quoted him as saying that if Spain’s borrowing costs were “too high for too long”, then “I can assure you 100 per cent that I would ask for this bailout”.

The economic backdrop was grim, with figures from the Bank of Spain on Wednesday showing economic output sliding fast in the third quarter.

The Madrid stock exchange fell by nearly four per cent in afternoon trade, in line with other European indexes troubled by Spain’s outlook.

The interest rate on Spanish 10-year sovereign debt rose above six per cent, a level considered unsustainable in the long term.

Protesters say the new austerity measures, on top of tens of billions in earlier cuts to lower the deficit and fix Spain’s finances, punish the poor unfairly.

They have staged mass street rallies such as Tuesday night’s, where authorities said 64 people were treated for injuries and 35 arrested.

Mariano Rajoy, Spain’s prime minister, will enact further cutbacks to try to bring down one of the euro zone’s largest public deficits amid falling tax revenues in the recession-hit country.

“Allow me to recognise from here in New York the majority of Spaniards who did not demonstrate, who do not appear on the front pages of newspapers or open the television news shows,” Rajoy said.