Spain is cutting 27bn euro from its budget this year as part of one of the toughest austerity drives in its history. The government says it will raise 12.3bn euros this year, aided by an increase in tax for large companies. According to Raj Badiani, an economist at IHS Global Insight I suspect that the government could be forced to implement further austerity measures later this year, with lingering economic downturn set to place additional strains on an already perilous budget deficit reduction plan.
Last month Prime Minister Mariano Rajoy agreed with the European Commission to reduce Spain's deficit from 8.5% to 5.3% of GDP in 2012. Investors - worried about a bailout for Spain or Italy - wanted the fund to increase from its current size of about 500bn Euros to closer to 1 trillion euros. But there was resistance from Germany to an increase of that scale.