Spain revises budget deficit up
Spain's new government has warned that the country's budget deficit will be higher than anticipated this year as it unveiled a first batch of austerity measures that include surprise income and property tax hikes.
Following the new conservative government's second cabinet meeting, the budget deficit for this year was revised up to 8% of national income from the previous government's forecast of 6%.
Alongside the upward revision, which comes amid predictions that the Spanish economy will soon be back in recession, the government, which is headed by Prime Minister Mariano Rajoy, announced further measures to get a handle on its debts, including 8.9 billion euro (11.5 billion US dollars) in spending cuts .
"This is the beginning of the beginning," government spokeswoman Soraya Saenz de Santamaria said. She said more reforms and austerity will come in 2012.
The conservative Popular Party took power only last week after an election win on November 20 and its main priority is to make sure that Spain does not get dragged into a similar debt crisis to those that have already forced Greece, Ireland and Portugal into seeking financial bailouts and is now threatening Italy.
Though Spain's budget deficit is higher than the 3% threshold that was supposedly part of the euro's economic framework, it has so far avoided the same sort of bond market pressure experienced by Italy, partly because its overall central government debt burden is relatively low at around 66%, while Italy's is at around 120%.
An increase in the deficit forecast was not a total surprise, but its size was. Many economists had predicted an increase because the economy stagnated in the third quarter and is now officially forecast to drop back into recession in the first quarter of 2012.
Spain's jobless rate is 21.5%, which is the highest in the euro zone.
Spokeswoman Saenz de Santamaria said the jump in the deficit forecast came as a surprise because the outgoing government was slow in turning over some documents, and the new number had to have consequences.
"It is going to force us to take extraordinary measures," she said. "We are confronted with an extraordinary and unforeseen situation which is going to force us to adopt extraordinary and unforeseen measures."