Aug
27
Spanish Prime Minister Mariano Rajoy
will push the deepest budget cuts in the nation’s democratic
history amid local elections after Galicia and the Basque
country brought polls forward to Oct. 21.
Galician president Alberto Nunez Feijoo, a member of
Rajoy’s People’s Party, today said the local poll will be held
in October instead of March 2013. He made the announcement a
week after the Basque government took the same decision.
“This is an extraordinarily serious moment for the
economy” that requires political stability to take decisions,
Nunez Feijoo said during a televised news conference today in
Santiago de Compostela.
Rajoy’s PP will campaign in the two northern regions as the
government implements its fourth austerity package in eight
months. The premier has given up on the economy returning to
growth next year as he struggles to tackle the euro area’s
third-largest deficit amid unsustainable borrowing costs.
“It’s going to be the first real test of Rajoy’s
austerity,” Antonio Barroso, a political analyst at Eurasia
Group in London said in a telephone interview. “Rajoy doesn’t
have a lot of margin, he has to present a budget in September.”
Second Bailout
The yield on Spain’s 10-year benchmark bond has dropped 136
basis points from a euro-era intraday record of 7.75 percent on
July 25 as investors speculate Rajoy may request a second
bailout, involving the European Central Bank. The government
signed off on up to 100 billion euros ($125 billion) of loans to
shore up banks burdened with bad loans on July 24.
Spanish value-added tax will increase by 3 percentage
points to 21 percent on Sept. 1 while jobless pay and civil
servants’ wages will be cut in the coming months. The measures
are part of a plan announced last month to triple austerity
efforts to a total of 15 percent of annual gross domestic
product through 2014.
Galicia and the Basque country have called polls as Spain’s
17 semi-autonomous regions are struggling to meet a combined
deficit target of 1.5 percent of GDP this year and prepare
budgets to meet a target of 0.7 percent next year.
Contribute to Stability
Rajoy has assigned the regions 70 percent of the nation’s
deficit-cutting efforts this year and 44 percent next year after
they were responsible for most of the deficit slippage last
year. The European Union has set Spain a deficit goal of 6.3
percent of GDP for 2012, down from 8.9 percent last year.
Early elections in Galicia and the Basque country will
contribute to political stability by avoiding too many votes in
a short period of time, the PP’s chief Maria Dolores de Cospedal
said today during a news conference in Madrid.
Cospedal said the government had no choice but to raise
value-added tax and that the PP will conduct talks with unions
and health-industry representatives to discuss budget cuts.
“This government has made very important reforms that
aren’t always the most popular and that are meant to achieve the
country’s recovery, not secure votes,” she said.
Support for the PP has slipped 8 percentage points since it
won 40.6 percent of votes in a landslide in November. Rajoy
broke his first election pledge within nine days of office by
raising income tax. He turned his back on more promises in the
following months as he scrapped a tax break for home owners and
cut health care and education spending.
To contact the reporter on this story:
Angeline Benoit in Madrid at
abenoit4@bloomberg.net
To contact the editor responsible for this story:
Craig Stirling at
cstirling1@bloomberg.net
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