Spain's Budget Cuts Likely To Provoke Protests

Europe has offered Spain up to $125 billion to recapitalize its banks. Shoring up its banks is one step Spain is taking to prevent economic collapse. The other step is to slash more than $50 billion from its budget to get spending down within legal limits set by the E.U.

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STEVE INSKEEP, HOST:

European finance ministers have asked Spain if it might need a few bucks to tide it over - in particular, $125 billion to prop up failing banks. The Spanish government is expected to announce today how much of that sum it will need.

Shoring up banks is one step Spain is taking to prevent economic collapse. Another step is to slash more than $50 billion dollars in spending.

Lauren Frayer reports from Madrid on Spain's new budget, unveiled last night.

LAUREN FRAYER, BYLINE: Thousands of Spaniards spent the days leading up to the government's budget announcement on the streets protesting. They surrounded the parliament, chanting "they don't represent us."

At the same time, Prime Minister Mariano Rajoy was photographed on the streets of New York, where he was visiting the U.N., puffing a cigar.

Protesters like Maria Cruz were disgusted by that image.

MARIA CRUZ: They are not defending us. They are defending the money, and the money has no country.

FRAYER: With this new round of austerity measures, many Spaniards anticipated even more harsh budget cuts to things like education, health and pensions. But Deputy Prime Minister Soraya Saenz de SantamarĂ­a said the government was fighting to preserve welfare spending, which was decreased drastically in the last round of cuts.

SORAYA SAENZ DE SANTAMARIA: (Spanish spoken)

FRAYER: The spending priority in this budget is social programs, she said. The part that will grow is our spending on pensions, scholarships and interest on the debt.

She said the government would dip into a social security reserve to keep paying pensions - and even increase them by one percent.

Not touching pensions was Rajoy's campaign promise. But others have been broken. The top sales tax rate rose to 21 percent this summer. Consumer spending has plummeted.

With pensions intact, the more than $50 billion in savings next year will come, instead, from new taxes on lottery winnings, public sector pay freezes and cuts to government departments' budgets. But some economists say that won't be enough.

GAYLE ALLARD: The credibility of the budget is sapped before they even get started, by their growth projections.

FRAYER: Gayle Allard, at Madrid's IE Business School, says the budget assumes 0.5 percent negative growth next year, which could be optimistic. The IMF forecasts economic decline of almost three times that. Less growth means less tax revenue - and then this budget's targets become impossible to meet. The only option, then, might be to ask Europe for help.

Ministers have not ruled out a second, larger bailout request beyond what Spain is already getting for its banks, hobbled by the big property boom-and-bust. Many economists, like Allard, say the sooner a full rescue comes, the better.

ALLARD: I'm not sure what the point is in waiting for that rescue. I think we'd better just get it over with. No matter how you project this forward, Spain's got a really long hard road ahead. They're not finishing this in 2013.

FRAYER: Ministers forecast that the nearly 25 percent unemployment rate here - the highest in Europe - will not come down next year. Economists say it could even go up.

The morning after this new budget was unveiled, commuters on the streets of Madrid are disgruntled. Subway service is suspended, as transit workers go on strike again.

Seventy-six-year-old Victoria Rodriguez waits for the bus in the pouring rain.

(SOUNDBITE OF RAINFALL)

VICTORIA RODRIGUEZ: (Spanish spoken)

FRAYER: I survive on my pension, and I'm glad to hear they won't take that away from me yet, she says. But I'm frightened.

I ask Rodriguez - who lived through the Spanish Civil War, dictatorship, democracy and now crisis - how she feels about the future.

RODRIGUEZ: (Spanish spoken)

FRAYER: Very bad, she says, and every day things are getting worse.

It's unclear whether Spain's efforts at belt-tightening will appease financial markets long-term. But for now, Spaniards continue to be frustrated and angry.

For NPR News, I'm Lauren Frayer in Madrid.

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