Spain Heads Towards Confrontation With Catalan Parliament
September 27, 2012
As Spain's government announced fresh austerity for next year on Thursday, the country was launched headlong into confrontation between central government and a Catalan parliament that pledged to hold a referendum on moves towards independence.
Spain's deputy prime minister, Soraya Saenz de SantamarĂ*a, warned that the government would stop any attempt at a unilateral referendum, effectively challenging the Catalans to either desist or break the law and face the consequences.
"There are legal instruments to stop this," she said, pointing out that the government could simply apply to the constitutional court to ban it before it was held. "And there is a government that is prepared to use them."
That clashed directly with the Catalan parliamentary motion, which called on the regional government that emerges from 25 November elections to hold a referendum – with, or without, central government permission.
Saenz de SantamarĂ*a said the only way a referendum could be held would be if it was called by central government and allowed people across the whole of Spain, not just Catalonia, to vote.
The heightened tension between Madrid and Barcelona came as ministers presented the broad figures of the 2013 budget, while Spain battles to hit deficit targets and please eurozone countries who are rescuing its banks and may soon have to bail out Spain itself.
"This is a budget in times of crisis but one to help get out of the crisis," said Saenz de SantamarĂ*a.
The budget figures were presented without revealing exactly where the axe would fall, but with the task of reducing the budget deficit by €13bn made harsher by a combination of recession and soaring debt payments.
Those payments increased by almost €10bn, with a further €7bn needed to prop up a creaking social security system. With the total adjustment looking set to hit €40bn euros, cuts in other places will be deep. Proper details were to be given on Saturday when the budget is taken to parliament.
Budget minister Cristobal Montoro insisted Spain was on target to meet its 6.3% GDP deficit target this year, with tax income due to hit targets despite the worsening recession.
Ministers gave no clues as to how close Spain was to asking for a full bailout, with finance minister Luis de Guindos saying that it was studying the terms closely and would decide when it was ready.
As Spain's borrowing costs began to rise again this week there was growing pressure on prime minister Mariano Rajoy to make the bailout request, which would allow the European Central Bank to step in and buy bonds to keep down the interest rates that Spain must pay.
While northern eurozone countries continue to insist on more austerity for Spain, analysts warned that this would further damage an economy that will shrink between 2% and 3% over two years.
"Given the severity of the recession and the scant prospect of meaningful growth, Spain needs more austerity like it needs a hole in the head," warned Nicholas Spiro of Spiro Sovereign Strategy. "The markets are also in two minds about fiscal retrenchment in Spain. Previous rounds of belt-tightening have not led to an improvement in Spain's perceived creditworthiness."
"Efforts to deflate Spain into competitiveness raise the prospect of many years of wage cuts and property price falls that will necessitate ever larger fiscal transfers from the stronger countries," added Trevor Greetham of Fidelity Worldwide Investment.
On Friday the government will reveal the full size of a hole in the Spanish banking sector caused by toxic real estate assets left over from a burst housing bubble.
Some 56% of the Spanish banking sector will get a thumbs up from the consultants called in to calculate the size of the hole, according to El PaĂ*s newspaper.
Santander, BBVA, Caixabank, Sabadell and several other medium-sized and small banks pass the test, it reported. Most others, led by bailed out Bankia, will have to ask for money from the €100bn credit line that the eurozone has offered via Spain's bank bailout fund.
Meanwhile, Greece's fragile coalition yesterday agreed on the main points of a controversial €11.9bn (£9.5bn) austerity package that the debt-stricken country's creditors have set as a condition for further rescue funds. Conservative prime minister Antonis Samaras clinched the consensus of his two left-wing coalition partners, who had both balked at imposing further belt-tightening. But the package, which must be put to international lenders for approval next week and then be voted through Athens' 300-seat parliament, comes with conditions.
