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Spain on the Brink


Spaniards are taking to the streets once again. And with the government about to inflict further financial pain on them, it’s not hard to see why.

Prime Minister Mariano Rajoy will present the 2013 budget to Parliament on Thursday.

He’s under pressure from European partners to find billions of euros in savings to put the country’s battered finances back on track.

The numbers required to plug the deficit are huge.

Total savings by the end of 2014 – likely to be mostly spending cuts – will exceed 60 billion euros.

“The target for this year, the 6.3%, I think now, looking at the half-year target that they’ve achieved around 4.6%, I think it clearly looks that Spain is well off track,” says Tobias Blattner at Daiwa Capital Market. “So, I think the deficit target for this year will likely be more in the neighborhood of 7% rather than the 6.3% that they postulated. And that obviously will also have implications for next year and I think 2014.”

So where will Rajoy find these billions?

He’s running out of options and is now looking at things like taxes on stock transactions, “green taxes” on emissions or eliminating tax breaks, and a previous taboo: cuts in inflation-linked pensions.

But Sony Kapoor, Managing Director at think tank, Re-Define, says that won’t be enough.

“I’m afraid we’re going to get a budget which is credible neither for the markets, nor for the European partners. It’s going to try and meet too many objectives all at the same time, serve too many masters, and end up not serving any of them.”

Rajoy is in a sticky spot. At home he must tackle growing social unrest, a deepening recession and rising regional political tension.

From abroad, he’s under mounting pressure to seek financial aid.

The budget may only magnify his plight.