September 26, 2012 / 5:40 PM / 7 years ago

Spain committed to reforms, all must sacrifice: Rajoy

NEW YORK (Reuters) - Spanish Prime Minister Mariano Rajoy vowed that he is committed to fiscal and structural reforms on Wednesday, saying that all segments of Spanish society will need to make sacrifices.

Spain's Prime Minister Mariano Rajoy addresses the 67th session of the United Nations General Assembly at UN headquarters in New York, September 25, 2012. REUTERS/Ray Stubblebine

“We know what we have to do, and since we know it, we’re doing it,” Rajoy said in a speech in New York as violent protests engulfed Madrid for a second day in a new round of anti-austerity demonstrations.

“We also know this entails a lot of sacrifices distributed ... evenly throughout the Spanish society,” Rajoy said in an address to the Americas Society in New York.

The violent protests in Madrid and growing secession talk in the wealthy Catalonia region have increased the pressure on the government to seek external aid to help get public finances in order.

Rajoy has been reluctant to ask for help, but in an interview with The Wall Street Journal this week he said he would seek a bailout if Spanish debt financing costs remained too high for too long.

The yield on Spain’s 10-year benchmark bond, a gauge of investors’ perceived risk for lending money to the government, topped 6 percent on Wednesday. Earlier this year, the yield rose above 7 percent, the highest since the euro was created more than a decade ago.

The European Central Bank said this month it would ease borrowing costs for indebted states such as Spain by purchasing their government bonds. But a country must request aid from the European rescue fund and meet strict conditions to qualify for ECB help.

Rajoy said reducing the budget deficit and embracing reforms to make the country more competitive were essential for both Spain and the 17-country euro zone, which has been mired in a debt crisis for more than two years.

The government will unveil its 2013 budget on Thursday, which Rajoy has said will include new reforms, including restrictions on early retirement.

“The Spanish government has a clear economic strategy. It also has parliamentary stability of more than three years that will allow it to make the needed reforms,” Rajoy said.


The level of stability and support in Spain’s general population may not be as high. Protests against reforms turned violent on Wednesday as protesters clashed with police.

And with the country mired in recession and unemployment hovering around 25 percent, going it alone is getting tougher. The central bank said Wednesday the economy continued to contract sharply in the third quarter.

Data this week also showed Spain’s budget deficit for the year hit 4.8 percent of gross domestic product in August, suggesting the government will not achieve its target of 6.3 percent for the full year.

That news spooked global investors, who drove Spanish yields higher and the euro lower on Wednesday.

“Spain is in a vicious cycle, because austerity is hurting economic activity and revenues, which causes greater fiscal gaps,” said Boris Schlossberg, managing director at BK Asset Management in New York. “People are starting to realize this, and the political will to absorb these sacrifices is diminishing by the hour.”

The government’s drive to rein in regional overspending as part of its austerity measures has also prompted a flare-up in independence fervor in Catalonia, the wealthy northeastern region that generates one-fifth of Spain’s economic output.

Catalonia needs a 5 billion euro bailout from the central state to meet debt payments this year, but Catalans say they bear an unfairly large share of the country’s tax burden.

More than half say they want independence from Spain, the highest level ever.

About a dozen demonstrators waving Catalan flags and holding signs calling for independence gathered outside the Americas Society building in New York where Rajoy spoke on Wednesday.

“This is not just a matter of the crisis, of the economy, of taxes,” said Ester Aliu, 33, a researcher at Barnard College in New York. “We are happy to contribute, but to Europe not to Spain.”

Editing by Leslie Adler

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