Spain: "Brussels, We Have A Problem"

That was the headline of an editorial in Tuesday's edition of Spanish business daily Cinco Días. The problem - slightly overlooked due to news coming out of Athens, Berlin and Dublin - is that Spain's public deficit at the end of 2011 was 8.51% of GDP. This is 2.5% higher than the target agreed with the European Commission.

In effect, this means that in order to meet the agreed deficit target (4.4% of GDP) by the end of the year, Spain needs to find total savings of €44 billion. The new centre-right government slashed some €15 billion of spending last December, meaning that an additional €29 billion now needs to be found somewhere, through public spending cuts and/or tax hikes. That won't be easy.

As in other parts of Southern Europe, the question is how much austerity the population is willing to take. With austerity measures starting to bite, widespread protests are continuing across Spain in the wake of last year's indignados movement. Thousands of students have been taking to the streets in all the main Spanish cities over recent weeks to protest against education cuts, with the demonstrations sometimes turning violent. Civil servants in the debt-laden Castilla-La Mancha region yesterday went on strike over the local government's plans to cut salaries by 3% and extend the working week by two-and-a-half hours.

In a sign of how much power unelected officials now have in the eurozone, the Spanish government is hostage to decisions made by the European Commission on whether to soften Spain's targets, and give the country a bit of breathing space. Economic and Monetary Affairs Commissioner Olli Rehn and his Spanish colleague Joaquín Almunia, in charge of competition, have said that a decision on whether to revise the targets can't be taken until Spain submits its draft budget and fiscal consolidation plans for 2012, which is unlikely to happen before the Andalucía and Asturias regional elections on March 25.