Quarrels over who bears the brunt of cuts worth more than 10 percent of Spain’s annual gross domestic product threaten Prime Minister Mariano Rajoy’s plan to tackle the euro area’s third-largest deficit as a second bailout looms.
A seven-day rally that has driven Spain’s 10-year yield to 6.1 percent at 10:55 a.m. in Madrid from 6.9 percent may falter as squabbles between the government, regions and towns about spending and tax receipt allocations hobble deficit reduction. Spain will miss its targets for budget gaps of 6.3 percent of GDP this year and 4.5 percent in 2013 as the nation’s recession worsens, according to the median forecast of 12 analysts surveyed by Bloomberg News.
Economists are predicting overspending may remain close to 8.9 percent of GDP for a second year. The central government exceeded in June its limit for the whole year as it bailed out the regions, town halls and the welfare system amid the second recession since 2009.
The government has ruled out cutting pensions next year and extended a temporary benefit for long-term jobless people to stem growing discontent, Afi’s Herce said. “Rajoy’s strategy is to wait and say little to avoid political damage in the short term.”