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European Debt Crisis

Spain’s government announces tough new budget

Christopher Werth Sep 27, 2012
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In Spain today, the government unveiled its budget for the next year. The program included further austerity measures that bring in around $50 billion dollars’ worth of tax hikes and budget cuts. Central government spending will be cut by 7.3 percent and public sector pay frozen for a third year.

Spaniards are already feeling the pain of earlier austerity measures such as a hefty sales tax hike introduced earlier this year. Madrid resident Juan Rodenas waited outside an unemployment office to register for benefits. Rodenas, who had just lost his job as a waiter said the austerity measures are hurting.

“The sales tax went up on food and other items,” he said, “and now there are things I just can’t buy.”

Gonzalo Garland, an economist at the IE Business School in Madrid, says it’s understandable that Spaniards are angry at the cuts. But he also recognizes that the government has to cut the deficit so investors and the European Union will believe it can be trusted to borrow money.

“It’s trying to show to Europe that it will do whatever is necessary to comply with the budget. Therefore Europe you don’t have to worry that I’m not making these reforms that at the end of the day are needed,” he said.

Prime Minister Mariano Rajoy’s government needs to avoid a full Greek-style bailout because if not, the European Union and International Monetary Fund would get to say what cuts were made. Such an imposition of outside mandates might further inflame public opinion still further in a week when public protests in Spain turned violent.

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