Protests And Threats To Hoard Tax Receipts Keep Spain's Rajoy On A Tight Rope And Credit Markets Still Guessing

Wednesday, September 26, 2012 06:53
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Protests And Threats To Hoard Tax Receipts Keep Spain's Rajoy On A Tight Rope And Credit Markets Still Guessing

Tags: European crisis | European zone | world economy

Violence erupting on the streets of Madrid. Wealthy Catalonia’s fight to retain more tax revenue, a move that would threaten Spain’s already shaky financial system. Under these pressures, prime minister Mariano Rajoy issued a new plan for managing its fiscal woes.

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The plan would call for limiting early retirement options instead of raising the retirement age, create an independent agency to monitor compliance with budget targets, develop new job training programs, and pass new legislation that would do away with onerous government regulations. All in an attempt to slash the budget deficit.
 
Asking for a bailout from the European Central Bank is viewed as a last resort. Asking for a bailout would mandate stricter reforms, the ones threatening civil unrest. Political pressures have Rajoy waking a tight rope he describes as a fascinating situation.
 
Rajoy’s initial attempt to impose strict austerity measures was welcomed by the European Union (EU). But his country is falling deeper into recession and the imposition of those measures in full is increasingly unlikely.  
 
Public uproar over the prospect of reducing pension benefits has caused Rajoy to confirm there will be no cuts. Possibly a freezing of benefits, although this would still negatively affect benefit recipients as inflation rises, compromising their purchasing power.
 
Rajoy vigorously supports the creation of an expanded political and fiscal integration in the EU. And he is optimistic about the potential of the separate €100 billion bailout package to be sufficient.
 
He seems to feel that increased unity along with the already promised package would solidify the euro and offer the flexibility needed to prevent further deficit issues. The fact is, the credit markets may respond more favorably to a bailout than to Spain's stronger ability to manage the situation on its own.

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