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Thursday, March 29, 2012

Two Big Days For Spain

A 24-hour general strike is under way in Spain, in protest against the centre-right government's labour market reforms. Reports in the Spanish media suggest that participation rates have been higher in the manufacturing sector than in services. 58 people have so far been arrested and nine injured following isolated clashes between protesters and the police.

For the moment, the Spanish government seems to be sticking to its guns. Economy Minister Luis de Guindos said yesterday that "not a comma" of the labour market reform would be changed after today's strike.

And tomorrow's going to be another big day for the future of Spain, with the government due to announce its budget for 2012 and a new round of austerity measures designed to bring the deficit down to the 5.3% of GDP agreed with the European Commission. At the moment, Spanish Prime Minister Mariano Rajoy and his ministers have been tight-lipped about the details of the new austerity package.

We know from Rajoy's recent remarks that Spanish ministries will be required to cut their budgets by 14-15%, while de Guindos hinted at "limited" tax hikes - but the bulk of the measures remain largely unknown. Doubts have also been cast over how much the Spanish government will actually have to cut in order to meet its deficit target for this year. €15bn in cuts were already scheduled at the end of last year, but a new report from the Spanish Savings Banks Foundation (FUNCAS) has put the total required figure at €55bn, while Spanish economist Luis Garicano has suggested between €53bn and €64bn. Both numbers are much higher than the 'mainstream' €34-35bn estimate being touted up to now.

Whatever the size of the cuts announced tomorrow, the sense is that today's will not be the last general strike the Spanish government will have to deal with.

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