Prime Minister Mariano Rajoy will begin mapping out Spain’s economic path through the next 18 months today in the face of mounting pressure from protesters and investors, who pushed bond yields above 7 percent.
Rajoy will approve spending limits for 2013, the first stage of the budgeting process, and forecast the impact of austerity on the economy at a Cabinet meeting at 10 a.m. in Madrid. European finance ministers will also sign off on a 100 billion-euro ($123 billion) rescue package for Spain’s banks.
Tens of thousands of protested across the country late yesterday against a 65 billion-euro austerity package that failed to stem a surge in the government’s borrowing costs. Investors are shunning assets in indebted euro nations while accepting negative yields on debt from Germany, Finland and the Netherlands on concerns the currency union is creaking.
“We may look back on this two-, three-week period as the time when people just said ‘that’s it,’” said Gary Jenkins, founder of Swordfish Research Ltd. near London. “They’ve almost given up on Spain. It’s going to have to be restructured in some way, shape or form so you just don’t want to touch it.”
Spain is planning to complete the European-funded recapitalization of its banks by June, the Economy Ministry said yesterday. Banks will receive mostly bonds issued by the European Financial Stability Facility rather than cash, and the fund will be able to seek collateral from Spain’s bank rescue facility as a condition, the ministry said.
The yield on Spain’s 10-year benchmark bond rose 2 basis points to 7.04 percent at 9:40 a.m., pushing the gap over equivalent German securities to 582 basis points.
“They can’t survive for long with this sort of pressure,” said Jose Carlos Diez, chief economist at Madrid-based brokerage Intermoney SA. “There is still more fear than anger on the streets but the demonstrations are increasing and as unemployment increases, it will get worse.”
About 40,000 people demonstrated yesterday in Barcelona, where police arrested one protester, said an official at the regional police force, who asked not to be named in line with policy. In Madrid, 15 people were arrested and 39 injured in clashes, said an official at the national police force, who also declined to be identified.
Rajoy didn’t attend the debate yesterday on austerity measures in Parliament, leaving Budget Minister Cristobal Montoro and Economy Minister Luis de Guindos to defend the plan as the assembly building was protected by metal barriers. The decree was ratified with 180 votes, indicating none of the opposition in the 350-seat chamber supported it.
“From a strategic point of view, it makes sense for Rajoy to spread the pain across his ministers, as he already announced the most painful measures last week,” Antonio Barroso, a political analyst at Eurasia Group in London, said in a telephone interview.
After breaching election pledges by cutting unemployment benefits and raising sales tax, Montoro told lawmakers the government is planning to change the “unfair” tax treatment of capital gains made by “speculators.”
Spain’s two biggest unions led the demonstrations yesterday, calling for a referendum on the measures they described as an attack on public workers, pensioners and the unemployed. Oscar-winning actor Javier Bardem was pictured at the demonstration in Madrid.
“They are wrecking the future of a generation,” El Pais cited the star of “No Country for Old Men” as saying. “It’s an injustice to take responsibility away from the banking industry and attack the unemployed, the sick and the poor.”
Supporters marched through the center of the capital amid heightened security, with armed police guarding the ruling People’s Party’s headquarters.
“There are no jobs behind this plan,” Ignacio Toxo, leader of the Comisiones Obreras union said in a televised press conference. “This is just the destruction of the fabric of our economy.”
The government will offer forecasts today on the impact of austerity on output. In April it said the economy would contract by 1.7 percent this year and grow by 0.2 percent in 2013, before the EU pushed Rajoy to pass his fourth austerity package in seven months. De Guindos said yesterday the new estimates wouldn’t show a “significant change.”
The International Monetary Fund said July 16 Spain’s recession will stretch through next year with a 0.6 percent contraction. The Washington-based lender sees output declining 1.5 percent this year.