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France and Spain budgets


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France and Spain budgets

Within a day of each other, Spain and now France have made public their plans for their next year’s budgets. They are, respectively, the euro zone’s fourth and second-largest economies.

The conservative Mariano Rajoy and the socialist Jean-Marc Ayrault are each looking at a range of necessities, without much economic, political or social flexibility.

Spain’s revenue target is 39 billion euros for 2013, to bring its budget deficit to 4.5% of GDP from this year’s around 6.3%.

Here are the biggest factors which could make those ambitions hard to reach:

In recession, Spain’s economy is on the way to a GDP contraction of 1.5% this year, with a half a percent shrinkage projected for 2013. And it has the EU’s highest unemployment rate, nearly 25%, which is forecast to be almost the same at best next year.

In recession, Spain’s economy is on the way to a GDP contraction of 1.5% this year, with a half a percent shrinkage projected for 2013. And it has the EU’s highest unemployment rate, nearly 25%, which is forecast to be almost the same at best next year.

Madrid has proposed a rack of measures. Public sector workers’ salaries will remain frozen for the third year in a row, and ministries have been ordered to economise nearly nine percent, or four billion euros. A surveillance authority will watch out for backsliders. And Spaniards are already feeling the bite of higher VAT.

The French government is not looking at such restructuring as Spain, but has nevertheless given itself a revenue target of 37 billion euros, to reduce the budget deficit in 2013 to 3% from 4.5% this year.

The official prognosis for growth is positive but weak: 0.8%. It is only 0.3% for this year, and many economists are convinced that the debt growing to more than 91 billion euros next year will drag heavily.

The cabinet has taken pains to not use the word ‘austerity’, but critics on the right and also the far left are crying foul.

The administration of President François Hollande has increased the tax burden by 20 billion euros, to be spread over companies and households, twice as much as the planned 10 billion in spending cuts.

Rajoy isn’t the only one fighting job losses: the French have just topped three million.

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