- Focus on cutting spending not hiking taxes, says Spain's Deputy PM
- €3bn tapped from social security reserve fund
- Budget based on unchanged forecasts and light 2013 recession
- Euro hits session lows with losses against Yen and dollar
- Independent fiscal watchdog to be set-up
17:52 BST And so the press conference ends.
With tensions on the streets of Spain's capital Madrid already bursting into clashes between protestors and police, there was little in the budget conference to douse the fiery rage.
Raiding the social security reserve fund - aka the pension pot - for €3bn will cause anger among the population, as will yet more cuts in spending for Spanish government departments, and labour market reforms that make it harder to retire and easier to fire.
An independent fiscal watchdog will be created to crack the whip over deficit reduction targets and budget responsibility, said Spanish ministers.
Pensions will go up by 1 percent in 2013, but there will be reforms to the retirement age to bring reality in line with the legal and prevent early retirement in the public sector.
While Spanish officials point out that they can still access the bond markets to borrow at a reasonable rate, how investors view the government's proposals on tackling its huge economic strife will become known at the next auction of its sovereign debt.
The EU Commission was positive and said it represents a "big step", but the markets may think differently as more details on the reforms emerge in the coming six months.
Thus concludes IBTimes UK's live blog. Until next time, thanks for reading and goodbye.
17:45 BST Spanish economy will contract by 0.4 percent in the third quarter, in line with the quarter before it, says the government, who also insist they are comfortable with the current forecasts.
17:43 BST Spain's economy minister says Spain still has bond market access and that its borrowing costs are below 2011's numbers.
17:35 BST More from the EU Commission.
"The reforms are clearly targeted at some of the most pressing policy challenges," EU Economic and Monetary Affairs Commissioner Olli Rehn said in a statement.
"I particularly welcome the ambitious plans to establish an independent fiscal Council, to further liberalise professional services, and to effectively reduce the fragmentation of the internal market in Spain."
17:34 BST Saenz: Any Catalan referendum would go to Constitutional Court.
17:29 BST Spain's Treasury minister saying that pensions will be increased by 1 percent, pension spending will go up by 4 percent, and that the forecast for 2013 pension spending depends on inflation.
17:27 BST From Bloomberg's Linda Yeuh:
EU top econ official Rehn says #Spain's reform plan "responds to country-specific recommendations and goes even beyond them in some areas"
— Linda Yueh (@lindayueh) September 27, 2012
17:22 BST The EU Commission has welcomed the Spanish measures that have been announced and said they are an "important step" to tackling the deep economic problems facing the country.
17:18 BST Public debt will hit a whopping 80 percent of Spanish GDP in 2013.
17:17 BST A robust riposte to Catalonian separatists who want independece: You can't have a referendum on breaking away unless the whole of Spain agrees.
17:14 BST Government says it thinks the €18bn liquidity mechanism to bail out troubled Spanish regions is sufficient and won't need anymore cash.
17:13 BST Spain's economy minister says Spain has fully co-ordinated with th eEU framnework and recommendations on budget control. The government is still analysing the conditions of the ECB bond buying programme and that a decision on a request for aid will be taken when it is clear what impact it has had on Spain and the eurozone.
17:11 BST Some analyst reactions have started dropping in.
JOSE LUIS MARTINEZ, CITIGROUP, MADRID
"The first impression is good, heading towards a major adjustment in spending rather than in revenues. However, we see as too optimistic the macroeconomic assumption of 0.5 percent recession for the next year.
"We see a scenario with a deeper recession and if this were the case, further spending cuts will be needed".
JOHN HARDY, CURRENCY STRATEGIST, SAXO BANK, LONDON
"It (the budget) does set the stage for eventual aid from the EU, but things are still up in the air and fairly uncertain. The short squeeze in the euro has probably run its course and we see it weakening in the near term. Euro/sterling should ease and euro/Swiss franc could drop back to its floor of 1.20 francs."
ALESSANDRO TENTORI, STRATEGIST, CITIGROUP
"It think the interesting point is that the balance of the budget is actually in spending reduction and not so much in tax cuts... For me, it means that it's (impact) on the economy is less immediate, it's going to be more long-term.
"As much as I can gauge from the market's positioning, it seems like nobody really wants to go short Spain before the activation of the OMT. There seems to be a big consensus base in the market that Spain will have to go for a support program and hence nobody wants to go short into that because they think it's going to happen rather soon, or sooner rather than later... It's a bit difficult to read into any impact from the budget just because of this huge positioning in the market."
17:09 BST Desperate times call for desperate measures...
"Tourists from as far away as Australia and India might have to pay next year to throw tomatoes at each other at Spain's famous La Tomatina festival.
"The eastern Spanish town of Bunol -- where the streets fill with red sludge at the annual bash -- is studying an entry fee of 5 euros ($6.42) to limit attendance and improve safety, a town official said on Thursday."
17:07 BST Spain's Montoro claims that the country's deficit targets will be "easy" to meet in 2012 because of good performance on revenues.
16:57 BST Plans on pension reforms will be presented by the end of the year.
Measures will be brought in to synchronise real and legal retirement ages, to stop people leaving employment early. Retirement age will be linked to life expectancy.
16:55 BST As the markets take in the news from Spain, the euro pares its losses against the Yen and dollar after hitting two week lows.
They'll also be considering the promise that the new independent budget authority in Spain will oversee "strict budget compliance".
16:53 BST Spanish government promises to reflect all recommendations from the EU in its economic reforms plan.
16:48 BST Spain's budget spending will actually increase in 2013 by 5.6 percent, says the Treasury ministry, though departmental spending will drop by 8.9 percent.
16:44 BST Montoro says new tax measures will boost government coffers by €4.7bn across two years.
The cost of Spain servicing its debt in 2013 will be €38.6bn.
16:40 BST Tax revenues will grow by 3.8 percent on year before in 2013, says Montoro.
16:38 BST Spanish ministers say spending cuts will be worth 0.77 percent of GDP in 2013 and that tax income will be higher than in 2012 with adjustment in revenue worth 0.56 percent of GDP.
16:31 BST IBEX down 0.2 percent as the closing bell approaches. Probably for the best that the budget press conference was delayed...
16:30 BST Spain's Treasury minister Cristóbal Montoro saying the 2013 budget will be based on unchanged forecasts and a light recession next year. Also says 2013 will be last year of recession for Spain.
16:27 BST Saenz says the government needs to tap 3bn euros from the social security reserve fund - read: raiding pensions - to cover liquidity needs. And the currency markets do not like it. Euro down against the Yen to a session low and extends losses against the US dollar.
I don't think the Spanish people will take too kindly either.
16:25 BST Lukewarm reaction from the currency markets as the euro recovers losses slightly against the US dollar.
16:20 BST Labour market reforms are coming, which will surely add yet more heat to the clashes between the government and unions.
Energy and telecoms services will be liberalised.
There will also be 43 new laws in the next six months to reform the economy. No specific details yet.
16:19 BST Revenue targets for 2012 will be met.
Early retirement for public sector staff looks like it's on its way out too, as the Spanish deputy PM Soraya Saenz de Santamaria says they are preparing to adopt measures to limit it.
There will also be an independent fiscal authority - similar to the Office for Budget Responsibility in the UK - to watch over government finances in the future.
16:15 BST Finally we are underway...
Spain's cabinet has approved its 2013 budget - and it's all about spending cuts not tax hikes.
Those cuts are going to fall on social spending, says Reuters.
1545 BST: A cynic ...
... might suggest the Spanish cabinet has delayed the budget news conference to coincide with the close of trading on the IBEX, which is down about 0.2 percent as we head to the final bell. Others have opined that the longer-than-anticipated meeting suggests Rajoy may not enjoy the full confidence of his ministers, including Spotlight Ideas managing director Stephen Pope.
"The fact that the budget announcement is so badly delayed makes one suspect that PM Rajoy is not in charge of his own cabinet. How deep are the divisions inside his government ."
We're still waiting
1535 BST: Images of Spain's recession:
A harrowing slideshow detailing the human cost of Spain's deepest recession in modern history from today's New York Times.
1525 BST: On the topic of bonds:
RBS published an intereting table of debt needs for the Eurozone between now and the end of the year today: Spain, it estimates, has raised around €72bn (fouth most in the region) to date, around 62 percent of its 2012 target of €111.9bn, leaving around €44bn remaning. Around €30bn of that will mature in October.
RBS sees net issuance of around €15bn in each of the final three months of the year, figures that "look on the heavy side forissuance sizes (c.€7bn per auction) and it is partly for this reason that we think a MoU is inevitable."
1500 BST: How important is a bond rating?
Asks the Canadian financial website Advisor.ca. It's an important question in the Spanish context, given that Moody's Investors Service is set to complete is review of Spain's debt rating, which sits at the edge of investment grade status (Baa3) sometime this week.
"We're looking at countries that have high real yields - the nominal interest rate less the inflation rate," says Patrick Bradley, a product specialist with the global fixed income team at Brandywine Global investors. "We also do hard evaluation of a country's cyclical position: we are looking at economic growth expectations and inflation policy; interest rates and [whether those] rates will rise or fall."
1440 BST: Another delay
Reuters is reporting that Spain's budget statement will begin at 1600 BST. Spain's government website seems to confirm.
1425 BST: While we're wating
Market chatter has turned to Italy: Prime Minister Mario Monti, the technocrat leader brought in to clean up the Silvio Berlusconi mess, has told the US public broadcaster, PBS, that he "cannot exclude" staying on for a second term as PM when his tenure expires early next year. "Should there be a special circumstance, which I hope there will not be, were I to be asked, I would consider" he said on the network's Charlie Rose programme.
1350 BST: No word yet
Seems Rajoy's cabinet is still locked in discussion, so we're waiting for the news conferene to begin and for details to hit the tape ... meanwhile, it's probably worth noting that there could be some more discussion of a very under-reported aspect of the grand Spanish rescue project: Spain's attempt to estabalish an Irish-style "bad bank".
Here's some thoughts from RBS on the subject:
"Spain's bad bank will come into operation in December, according to de Guindos. Bloomberg News has reported over the past weeks that the bank will manage up to EUR 100bn of bad loans and foreclosed property over a 10-15 year period, purchasing these assets for between 40-50% of the nominal value. In addition, the bank will be capitalised in part by the central government and in part by the remaining good banks such as Santander, BBVA and Caixabank. This would be negative for the good banks, as it further ties them into helping the other bad banks. In the same way, all the banks have also been tied into helping the regions: they will each have a stake in a EUR 30bn syndicated loan to the fund to pay the commercial obligations of the regional governments. Both of these moves further enhance the sovereign-region-bank nexus and do not decrease overall asset risk, keeping the exposure within Spain."
1335: What's Spanish for "U-Turn"?
in French, at least, it's "demi-tour" ... anyway ... Open Europe is reporting that Rajoy's budget will increase by 1 percent next year, broadly in-line with inflation. Now ... is this a cut? A freeze? Or no change at all. I'll be interested to see how (if the report is correct) this will be spun by the Popular Party and the Spanish press.
1325 BST: Overwhelming
Reuters says a recent poll of investors suggests as many as 80 percent expect Spain won't be able to avoid a formal EU bailout in the next 6 months.
1315 BST: Caution prevails
The single currency is sitting at a two-week low against the US dollar ($1.2862) and benchmark 10-year German bund yields are firm at 1.46 percent. That said, Spanish 10-year bond have dipped back below 6 percent (5.97 percent) perhaps advancing on the "bailout" trade: ie the assumption that today's budget will signal a move by Rajoy to formally seek EU financial assistance and thus trigger the "unlimted" bond buying programme of the European Central Bank.
1255 BST: Possible delay?
Retuers reports that Rajoy's cabinet is still in session, and quotes a government official who tells them the news conference will begin at 1400 BST "at the earliest". We'll keep you posted.
1245 BST: Spain's "Triple Hurdle"
Societe Generale outlines the three major tests Rajoy faces in the coming days
1. Budget 2013: "Substantial efforts will be required to meet the 4.5% of GDP budget deficit target, down from6.3% in 2012. A pension freeze is one possibility, but markets will also be keeping close watch on tensions with the autonomous regions, and notably with Catalonia."
2. Structural reform: "Press reports suggest that pension reform could be at the heart of the package to convince both markets and its European partners of Spain's resolve. The reform could see the increase of the retirement age from 65 to 67 fast tracked and a freeze pension indexation. The later move could save as much as €5-6bn in 2012 (or around 0.5% of GDP). Other areas for reform flagged by the EU Commission include taxation, labour markets, SME funding and additional service sector deregulation."
3. Bank stress tests: "Consensus for bank recapitalisation needs hover around the €60bn mark - a number also flagged by Finance and Economics Minister de Guindos.Too low a number will raise concerns that there are more hidden losses to come all the more given the very fraileconomic backdrop."
1240 BST: Some backgroud
Rajoy tabled around €65bn in new cuts and savings (over 2 years) earlier this summer when pressed by the EU to hasten the pace of deficit reduction. Around €13.5bn was earmarked for this year's accounts, with €22.9bn and €20bn respectively set against the ledgers for 2013 and 2104, so we'll need to separate those commitments from any new pledges in order for avoid any "double counting".
The overarching aim is to reduce last year's budget deficit to 6.3 percent of GDP (from 8.9 percent) and clip it further to 4.5 percent in 2013 and 2.8 percent in 2014.
Headlines from the July measures include: VAT rising to 21 percent (from 18 percent); Cancelled Christmas bonuses for civil servants; a reduction in jobless benefits and a 20 percent spending cut for political parties and trade unions.
1230 BST: Barclays take:
"We expect the government to remain committed to the agreed 4.5% GDP budget deficit target. However, we see the risk that it could be amended if, as reported by Dow Jones, Spain revises up its 2011 budget deficit figures to 10.0% of GDP from 8.9% of GDP, to include fund injections used to support the banking sector, which are estimated at EUR11bn (c.1.1% of GDP). At this stage, in fact, we see little political room for the Spanish government to implement additional primary balance adjustments on top of the one presented at the beginning of August which was for EUR50.0bn over the next 2.5 years."
1215 BST: Good Afternoon!
We're about an hour away from hearing details of Prime Minister Mariano Rajoy's crucial budget statement to the Spanish parliament that will outine his fifth package of reforms aimed at stabilizing the nation's budget deficit and earning credibilty from international lenders - all the while buying time before he has to make a decsion as to whether he will request a full-scale bailout from his European Union partners.
Investors seem cautious ahead of the 1300 BST statement; Spanish stocks are little changed (the IBEX is up around 0.17 percent after a 3.9 percent tumble on Wednesday) while benchmark bond yields are hovering around 6.05 percent. Safe-haven bund yields are trading at a three-week low.
Rajoy finds himself in the awkward position of having to argue that regional financial aid will only be meted out under strict fiscal supervision from Madrid, but an EU bailout must not be limited by any fiscal conditions from Brussels.
As his Popular Party government prepares to deliver today's budget, it also awaits the results of a comprehensive banking sector audit and a Moody's Investors Service review of its Baa3 debt ratingi.
Demonstrations in Spain's capital Tuesday underscored the political risk Rajoy faces: police fired rubber bullets and pummelled members of the "Rodea el Congreso" anti-austerity rally with truncheons after thousands gathered outside parliament to protest his government's upcoming budget statement. Local media reports suggest as many as 35 were arrested and another 64 injured in the largest and most significant anti-government rallies since a failed military coup in 1981. Further protests are slated for Wednesday evening to coincide with a general strike in Greece.
At the same time, Spain's economic prospects are looking increasingly bleak. The central bank said Wednesday that "available data for the third quarter of the year suggests that GDP kept falling at a significant rate, in a context of high financial tensions".