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Europe

Clashes and debt woes end brief honeymoon for Rajoy

Video by Josh Vardey

Text by Joseph BAMAT

Latest update : 2012-03-30

The right-wing government of Mariano Rajoy was swept into power late last year on a promise of sweeping budget cuts. But as Spanish workers strike and debt alarm bells ring in Brussels, Madrid must quickly respond to the country’s economic problems.

The government of Spanish Prime Minister Mariano Rajoy unveiled huge budget cuts on Friday, one day after a general strike against austerity measures rallied hundreds of thousands across the country.

The hugely unpopular belt-tightening regime has been described as the harshest in almost four decades. But even so analysts doubt it could prevent a deeper economic crisis.

As Spain's new conservative government unveiled a 27-billion-euro ($36 billion) deficit-reduction package, bringing its brief period of grace to an abrupt end, authorities in Barcelona were busy assessing the damage caused after Thursday’s strike descended into arson attacks and clashes with police in the Mediterranean city.

Speaking to reporters at a press conference after the budget plan was approved, Finance Minister Cristobal Montoro said it was the most austere budget plan since the end of the Franco regime in 1975. Deputy Prime Minister Soraya Saenz de Santamaria added that the package included a 17 per cent cut in central government ministry and a freeze in civil servant wages.

Madrid had already signaled that the ambitious plan would shave 35 billion euros in state spending, with the aim of reducing the public deficit from 8.5% of GDP last year to 5.3% by the end of 2012.

Spanish media said other painful measures would include plans to reduce the state’s workforce by not replacing retirees, as well as cuts to the purses of Spain’s regional and city governments.

Rajoy had earlier ruled out raising value-added tax, or sales tax, amuid concern such a move would hurt consumer spending. But left-wing daily El Pais reported that the government was considering an increase in taxes on specific items and services.

The blueprint will go to the Spanish Parliament on Tuesday and is expected to be formally passed in June.

Speaking at a meeting of Eurozone ministers meeting in Copenhagen earlier on Friday, Finance Minister Luis de Guindos said Madrid had presented a “convincing” budget. “Spain will stop being a problem for the Spanish people in particular, but also the [European] Union itself,” he said.

Guindos, one of the main architects of the new budget, said the unpopular reforms would put Spain back on the track of economic recovery.

Doubts remain


Despite the many reassurances, some European leaders and analysts remained sceptical of Spain’s ability to return to economic growth in the short term. The southern European country is already battling recession and draconian cutbacks will only further stifle recovery, some experts warned.

Among the sceptics, Italian Prime Minister Mario Monti and French Foreign Minister Alain Juppe have expressed doubt in recent days about Spain’s chances of meeting EU-imposed fiscal targets in the coming months.

In a recent report, Citigroup's chief economist Willem Buiter warned that Spain’s debt could be higher than previously thought and forecast that its economy would contract by 2.7 per cent this year. “The compromise 5.3 percent of GDP deficit target for 2012 and the unchanged 3.0 percent target for 2013 seem unlikely to be realised in our analysis,” Buiter wrote in a report.

Echoing Buiter's concern, many analysts have argued that cutbacks alone would do nothing to boost production and job growth.

On Thursday the French Observatory of Economic Conditions (OFCE) projected the Eurozone’s economy would shrink by 0.4% this year, with a mere 0.2% growth expected for 2013. Xavier Timbeau, director of forecasting at the Paris-based think tank, said Europe’s current austerity bent was the main reason the region was struggling to push economic figures into positive territory.

The OFCE warned that Spain’s financial woes could constitute a real threat for the economies of its neighbours. “If Spain witnesses a repeat of the Greek scenario, the minor recession we experienced in 2012 could turn into a much deeper crisis," Timbeau said.

No storefronts spared

If the Greek precedent is anything to go by, Rajoy’s government can expect to face a violent backlash on the streets – the like of which Barcelona experienced on Thursday.

“There is not a single intact storefront window left in downtown Barcelona,” city mayor Xavier Trias raged on Catalonian RAC1 radio on Friday morning. Trias said rioting by “500 to 1,000” violent protesters had left 300 burnt garbage containers, 500,000 euros worth of real estate damage, and 80 injured people, including two in a serious condition.

“[Austerity measures] have got people very angry,” said FRANCE 24 correspondent Sarah Morris. “Some people are very angry that a law has been changed to make it easier to hire and fire workers. Other people are very anxious about whether all of this austerity is actually working.”

While violence broke out in Barcelona, and to a lesser extent in Madrid, the large majority of Thursday’s marches were peaceful. Spain’s unions said they would not immediately call for a new strike and hoped to receive a “gesture” from the prime minister before May 1 workers’ day rallies.

However, few observers expect Spain’s government to change course. Speaking to reporters on Thursday, Labour Minister Fátima Báñez insisted that “the government's reform agenda is unstoppable,” and that while some dialogue with unions was possible “the backbone of the reform will not change.”

Less than 100 days after he took office, Prime Minister Rajoy has seen his honeymoon period with Spanish people cut short. But as worries about a repeat of the Greek meltdown flare, the Spanish premier seems unlikely to find a more accommodating crowd in Brussels.

Date created : 2012-03-30

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