PM plans more cuts ahead of possible bailout

After the briefest of vacation periods, the Spanish Cabinet will reconvene on Friday with just one subject on its mind: the economy, which looks to be heading toward needing a full bailout.

Statements made by Prime Minister Mariano Rajoy and his ministers have evolved from denying that there will be a full rescue for Spain, to “let’s see first what the European Central Bank does and then we’ll take a decision.”

Some kind of bailout, whether granted with soft or tough conditions, appears to be inevitable now, and pensions — previously the one area in which the government wasn’t willing to make cuts — are no longer untouchable. Further tax rises may also be in the pipeline as Rajoy’s administration battles to bring the deficit down to 6.3 percent of GDP by the end of the year.

As Economy Minister Luis de Guindos revealed this weekend, the Spanish government believes that “the Eurogroup will define the procedures [for a bailout] in the second week of September.” And before that happens, the government wants to ensure that it is able to meet its deficit targets, given that a rescue would be conditioned by a request for continuous information about public spending and revenue.

“With the cuts that we’ve made, we more or less know where we are in terms of spending,” says one government source. “But we don’t know how revenues are going to go.”

Meanwhile, some of the cuts that have already been introduced will begin to take effect on September 1, when around 150,000 immigrants who are in Spain but do not have their residency status in order will no longer qualify for free healthcare. Five regions — Andalusia, Asturias, the Basque Country, the Canary Islands and Catalonia — have said that they will ignore the new rules from the central government and will continue to treat all patients.