Why is Spain seeking a centralised budget control?

Spain, one of the major economies of Euro zone, is affected by the debt crisis. To overcome this situation, Spain’s Prime Minister Mariano Rajoy is planning to auction the sovereign bonds from Spain’s Treasury. The only way out seems to be the international bail out to get a relief from the outstanding debts which has risen close to 7% that has also offered assistance to countries like Greece, Ireland and Portugal to overcome their debt crisis respectively.

The smallest country in the Euro-zone, Cyprus, which is also facing similar situations with its economy, requires solutions to overcome the crisis period.

Mr. Rajoy who approved of the country’s budget 2012 with a budget deficit target of 5.8% of GDP, decided to cut the target to 5.3% due to the outstanding EU pressure. Later on, he also announced that the Euro-zone should opt for European fiscal authority as its core strategy, to coordinate with the fiscal policies of the 17 euro countries which will further enable these countries with a centralised control of finances.

Spain is seeking opportunities that will offer a secured position to capture on EU financing to recapitalise the struggling banks’ of the country. At the same time, it wants to avoid any full-scale intervention for difficult conditions imposed by countries like Brussels and IMF which will create a pressure on the current government.

Initially Spain was showing good signs managing its economy. This can be also confirmed from the fact that the European Commission praised Spain for its reforms and budget cuts. The main problem that Spain faces to come out of its debt crisis is its banks’ which are holding billions of Euros accumulating bad loans.

In order to do a close analysis of the current economic situation in Spain, a team of IMF experts will fly to Madrid. Even though this seems to be a routine visit, but experts are viewing it as a situation where the IMF team would make arrangements for an emergency bailout of the euro zone’s fourth largest economy. And if that happens, it will catapult into difficult situations for not only Spain, but also the whole of Euro zone.

A recent study has revealed that there is a further decline in manufacturing and a further loss of jobs for a major number of employees in the Euro zone threatening the region’s debt crisis further. In Spain alone the unemployment ratio has risen to a whopping 24.3% in April, while the manufacturing activity fell to a three-year low.