As Spain’s government announced fresh austerity measures for next year on Thursday, the country was launched headlong into a confrontation between central government and a Catalan parliament that has pledged to hold a referendum on moves toward independence.
Spanish Deputy Prime Minister Soraya Saenz de Santamaria said 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 Nov . 25 elections to hold a referendum — with, or without, central government permission.
Saenz de Santamaria 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 next year’s budget, as Spain battles to hit deficit targets and please euro zone 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,” Saenz de Santamaria said.
The budget figures were presented without revealing exactly where the axe would fall, but with the task of reducing the budget deficit by 13 billion euros (US$16.8 billion) made harsher by a combination of recession and soaring debt payments.
Those payments increased by almost 10 billion euros, with a further 7 billion euros needed to prop up a creaking social security system. With the total adjustment looked set to hit 40 billion euros, cuts in other places are set to be deep. Proper details were to be given today when the budget is taken to parliament.
Spanish Budget Minister Cristobal Montoro insisted that Spain was on target to meet its 6.3 percent GDP deficit target this year, with tax income due to hit government targets despite the worsening recession.
Ministers gave no clues as to how close Spain was to asking for a full bailout, with Spanish 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 Spanish 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 is set to shrink between 2 percent and 3 percent 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,” Nicholas Spiro of Spiro Sovereign Strategy said. “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.”