Spain has announced its austerity budget for 2013, against a backdrop of a falling economy and 25 per cent unemployment rate, as as pictures of the Spanish Prime Minister, Mariano Rajoy enjoying a cigar on New York's Sixth Avenue were splashed across Spanish newspapers on Thursday.
Madrid is expected to outline a further $50bn worth of savings, tax rises, and structural reforms, only a day after thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.
The government has predicted a budget deficit this year of about 6.3 per cent, but many analysts estimate it will be nearer 7 per cent or higher.
It comes amid further protests this week, and growing expectations that Spain will seek a bailout from its eurozone partners.
Rajoy's measures will be even more unpopular as the conservative leader's conspicuous taste for the finer things in life jarred as he asks Spaniards to accept yet more painful sacrifices to restore public finances.
A spokeswoman for Rajoy said the prime minister had been on an especially tight schedule in New York meeting other leaders, addressing the United Nations and giving media interviews and the short walk was his only breather.
But the image of him breathing cigar smoke recalled another incident that raised doubts about Rajoy's sensitivity for public opinion.
The day after Spain sought a $128bn lifeline for its banks in June, he took a few short minutes to announce at a news conference that he had saved the country, then flew to Poland with his son to watch the national team playing football.
Meanwhile Castile La Mancha has become the fifth of Spain's 17 regional governments to say that it will draw on a rescue fund set up by Madrid.
The central Spanish region said it would request $1.04bn euros from the $23bn Regional Liquidity Fund, joining Valencia, Murcia and Catalonia, who have collectively requested $3.85bn euros, and Andalucia who has yet to specify how much it needs.
Stocks fell sharply on Thursday, as well as a statement from the Spanish central bank that the country's economy had continued to shrink in the third quarter of the year as Thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.
Spain, the eurozone's fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country's property bubble.
But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.
On Friday the government is due to unveil an independent audit of its stricken banks to determine how much capital is needed to reinforce them from further shocks.
The budget and audit "could potentially boost sentiment towards Spain and pave the way for a bailout deal to be agreed", analysts at Capital Economics said in a note.
"But Spain will still be left with a number of other major problems" in meeting its fiscal targets, securing its banks and fielding pressure from Catalonia, they added.
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|Timothy V. Gatto|