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September 23, 2017

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Spain, Greece launch austerity plans to secure aid

MADRID -- Spain and Greece outlined plans Thursday to reduce government spending and raise taxes to convince international lenders and financial markets they are on track to cut their deficits.

The latest round of belt-tightening comes as economies across Europe get weaker and public resentment toward austerity grows stronger.

Spain's plan to slash its deficit in 2013 and 2014 signals to many analysts that it's preparing to request a financial lifeline from other governments and the European Central Bank. To receive this help, countries must first show they are serious about reining in deficits.

"This is a budget in times of crisis but one to help get out of the crisis," deputy Prime Minister Soraya Saenz de Santamaria said.

For similar reasons, Greece's coalition government agreed to cut spending over the next two years by 11.5 billion euros (US$14.77 billion). Without the cuts, Greece would have been cut off from vital bailout loans that it needs to pay its bills — and stay in the eurozone. The loans come from the International Monetary Fund, European Union and the ECB.

Finance Minister Cristobal Montoro said Thursday Spain's draft budget for 2013 would cut overall spending by 40 billion euros (US$51 billion).

Spain has come under pressure to take up the ECB on its offer to buy unlimited amounts of government bonds to help lower borrowing costs for countries struggling to manage their debts.

To get help from the ECB, Spain must first ask for assistance from the rest of the eurozone. So far, the government has been reluctant to ask for fear of the conditions the other countries will attach to its aid. Analysts say the Spanish government hopes Thursday's budget measures will be enough to stop the eurozone from imposing further spending and deficit controls if and when Spain asks for help.

The country is battling to fulfill an EU commitment to reduce its deficit in relation to economic output from 8.9 percent last year to 6.3 percent in 2012, 4.5 percent next year and to 2.8 percent by the end of 2014.

Thursday's budget package comes in the wake of anti-austerity protests in Madrid over the past two nights. More protests are planned for Saturday.

The Greek coalition government hopes that Thursday's agreement on austerity cuts will be enough to meet the targets demanded by its international lenders and keep the vital bailout loans coming.

Finance Minister Yiannis Stournaras said the long-delayed agreement placed him in a stronger negotiating position ahead of talks Monday with representatives from the country's bailout creditors, who will have the final word on the cutbacks.

On top of the 11.5 billion euros that has to be axed from state spending in 2013-14, Athens must also boost state revenues by an additional 2 billion euros over the next two years through tax reform and improved tax collection.

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