Brussels, 10/04/2012 (Agence Europe) - Before completing its study of Spain's budget plans for 2012, the European Commission says it needs further information about regional spending plans because the interest charged on long-term sovereign debt rollovers for Spain is starting to get dangerously high. A European Commission spokesperson said on Tuesday 10 April that Euro Commissioner Olli Rehn's department was still assessing the Spanish budget, but the information received thus far is positive and accompanied by structural reforms like easing labour law. However, it only covers central government. The Commission is awaiting the details about regional spending and the social security budget. Like the rest of the EU, Spain has until 30 April to submit to the Commission its Stability and Growth Programme and its economic reform plans under the European semester system.
Further €10 billion of cuts in health and education
On Monday, the Spanish government announced surprise new cuts of €10 billion from the healthcare and education budgets. The majority of the savings are to be made in the autonomous regions of Spain, 80% of whose budgets are made up of health and education expenditure. After passing a law giving central government control over regional expenditure, Rajoy's government is now requiring the regions' deficit to be no higher than 1.5% in 2012. The main cause of Spain's budget deficit being larger than expected in 2011 (8.5% of GDP rather than the 6% planned by the previous, socialist, government) was spending by the regions. The Commission spokesperson welcomed the new savings, saying they would help put the country back on track, but in order to stimulate growth, investment must be kept up and the Commission says that quality is more important than quantity. The spokesperson said that like in Greece, savings could be made in healthcare expenditure if patients are reimbursed too much of their healthcare costs, the calculations of which can be adjusted.
A few days after failing to roll over some debt, the yield on 10-year Spanish bonds rose on Tuesday to nigh on 6%, close to the level reached at the worst of the eurozone debt crisis. Hit by renewed concerns about the recession, Italy's yields were also rising and the gap between the yields for French and German debt was increasing, which suggests that the calm on the markets seen at the start of the year after the ECB injected €1 trillion into the market in cheap loans to European banks may be coming to an end. Spain took advantage of the lower rates earlier in the year to roll over nearly half of the debt that will reach maturity in 2012.
Spanish newspaper El Pais quotes the Spanish economy minister, Luis De Guindos, as saying that the risk premium turbulence should not make people forget the medium-term goal. He said that Spain would not be needing any foreign aid and set out the government's budget and macroeconomic programme. The government will be selling off banks nationalised when the property bubble collapsed, banks like Banco de Valencia and Catalunya Caixa. Spain's draft budget aims to cut the country's deficit from 8.5% to 5.3% of GDP through savings of a further €27 billion (see EUROPE 10587). Before Easter, De Guindos said that the comparison between Spain and Greece by French President Nicolas Sarkozy was nonsense. (MB/transl.fl)