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Spain Readies Budget for 2013 Spain Preparing Budget for 2013
(about 7 hours later)
MADRID — The spotlight in the euro zone’s sovereign debt crisis turned once again Monday to Spain, where Prime Minister Mariano Rajoy’s struggling government is set to present its draft budget for 2013 on Thursday.MADRID — The spotlight in the euro zone’s sovereign debt crisis turned once again Monday to Spain, where Prime Minister Mariano Rajoy’s struggling government is set to present its draft budget for 2013 on Thursday.
The proposal is expected to include further fiscal adjustments intended to shrink the budget deficit, as well as structural changes to spur competitiveness. The government is also expected to remove a tax break for home buyers and to introduce a tax intended to curb carbon dioxide emissions.The proposal is expected to include further fiscal adjustments intended to shrink the budget deficit, as well as structural changes to spur competitiveness. The government is also expected to remove a tax break for home buyers and to introduce a tax intended to curb carbon dioxide emissions.
In July, Mr. Rajoy presented a sweeping austerity package blending tax increases with reductions in public-sector wages and unemployment assistance. Together, those steps were intended to reduce the deficit by €65 billion, or $84 billion, over two and a half years. It was Mr. Rajoy’s fourth round of belt-tightening since taking office in December.In July, Mr. Rajoy presented a sweeping austerity package blending tax increases with reductions in public-sector wages and unemployment assistance. Together, those steps were intended to reduce the deficit by €65 billion, or $84 billion, over two and a half years. It was Mr. Rajoy’s fourth round of belt-tightening since taking office in December.
Mr. Rajoy has pledged to cut Spain’s deficit to 4.5 percent of gross domestic product in 2013 from 6.3 percent this year. Meeting that goal in a deepening recession has led him to backtrack on some campaign promises. One reversal was a decision to increase in the value-added tax to 21 percent from 18 percent that came into force on Sept. 1, which led to intensified street protests.Mr. Rajoy has pledged to cut Spain’s deficit to 4.5 percent of gross domestic product in 2013 from 6.3 percent this year. Meeting that goal in a deepening recession has led him to backtrack on some campaign promises. One reversal was a decision to increase in the value-added tax to 21 percent from 18 percent that came into force on Sept. 1, which led to intensified street protests.
Meanwhile, Mr. Rajoy has been debating whether to tap the European Central Bank’s new bond-buying program. The president of the E.C.B., Mario Draghi, said Sept. 6 that it was prepared to buy Spanish and Italian government bonds in unlimited quantities, if necessary, to lower those governments’ financing costs.Meanwhile, Mr. Rajoy has been debating whether to tap the European Central Bank’s new bond-buying program. The president of the E.C.B., Mario Draghi, said Sept. 6 that it was prepared to buy Spanish and Italian government bonds in unlimited quantities, if necessary, to lower those governments’ financing costs.
While that would help alleviate Spain’s debt financing problems, Mr. Rajoy is concerned that the aid would be accompanied by demands for additional austerity measures. Spain’s borrowing costs have fallen significantly since the E.C.B. announced its bond-buying program, but they remain high amid concerns about tension between Madrid and the country’s debt-ridden regional governments, as well as whether a slump in domestic consumption will prevent the central government from meeting its deficit pledges.While that would help alleviate Spain’s debt financing problems, Mr. Rajoy is concerned that the aid would be accompanied by demands for additional austerity measures. Spain’s borrowing costs have fallen significantly since the E.C.B. announced its bond-buying program, but they remain high amid concerns about tension between Madrid and the country’s debt-ridden regional governments, as well as whether a slump in domestic consumption will prevent the central government from meeting its deficit pledges.
Separately, Madrid is expected to release a final assessment Friday by Oliver Wyman, a financial consulting firm, on how much additional capital Spanish banks will need to maintain safe reserves. That report, based on audits by four accounting firms, will help determine how much Madrid will request of the €100 billion of European banking rescue funding that it negotiated in June.Separately, Madrid is expected to release a final assessment Friday by Oliver Wyman, a financial consulting firm, on how much additional capital Spanish banks will need to maintain safe reserves. That report, based on audits by four accounting firms, will help determine how much Madrid will request of the €100 billion of European banking rescue funding that it negotiated in June.
Oliver Wyman has published a preliminary assessment that banks will need as much as €62 billion in additional capital to stay afloat. About €20 billion of that is expected to be absorbed by Bankia, a giant mortgage lender whose nationalization in May led to Madrid’s request for aid.Oliver Wyman has published a preliminary assessment that banks will need as much as €62 billion in additional capital to stay afloat. About €20 billion of that is expected to be absorbed by Bankia, a giant mortgage lender whose nationalization in May led to Madrid’s request for aid.
Even as the problems in Spain, and to a lesser extent in Italy, dominate the European discussion, France will detail its budget plans for 2013 on Friday. Finance Minister Pierre Moscovici said Sunday that France would cut its budget deficit next year to 3 percent of gross domestic product, in line with European Union rules, from an estimated 4.5 percent this year.Even as the problems in Spain, and to a lesser extent in Italy, dominate the European discussion, France will detail its budget plans for 2013 on Friday. Finance Minister Pierre Moscovici said Sunday that France would cut its budget deficit next year to 3 percent of gross domestic product, in line with European Union rules, from an estimated 4.5 percent this year.
In addition to Greece — where journalists went on strike Monday to protest austerity measures and a general strike has been called for Wednesday — and Spain, Cyprus continues to negotiate for a bailout with the troika of the European Commission, the E.C.B. and the International Monetary Fund. Slovenia, another small euro zone member with struggling banks, may also need a bailout.In addition to Greece — where journalists went on strike Monday to protest austerity measures and a general strike has been called for Wednesday — and Spain, Cyprus continues to negotiate for a bailout with the troika of the European Commission, the E.C.B. and the International Monetary Fund. Slovenia, another small euro zone member with struggling banks, may also need a bailout.
The European Council president, Herman Van Rompuy, called on E.U. member states Monday to maintain their momentum in improving their finances.The European Council president, Herman Van Rompuy, called on E.U. member states Monday to maintain their momentum in improving their finances.
“Europe is on the way out of the crisis,” Mr. Van Rompuy said in a video on his Web site. “But there is still work to do.”“Europe is on the way out of the crisis,” Mr. Van Rompuy said in a video on his Web site. “But there is still work to do.”
Mr. Van Rompuy said he was happy to see early results of economic changes but added: “I see a tendency of losing the sense of urgency both on short-term policies and on longer term. This must not happen.”Mr. Van Rompuy said he was happy to see early results of economic changes but added: “I see a tendency of losing the sense of urgency both on short-term policies and on longer term. This must not happen.”
David Jolly reported from Paris. James Kanter contributed reporting from Brussels.David Jolly reported from Paris. James Kanter contributed reporting from Brussels.