Spain budget 2013 REPORT: Here’s what you need to know

Highlights:
Raising pensions and grants:
Both are going up but Spanish Deputy Prime Minister Soraya Saenz de Santamaria no gave no details
Spain is under tremendous pressure from its own people who are smarting from austerity
At protests this week, demonstrators clashed with police over the government’s austerity policies
Social spending:
64% of the budget will be directed to social spending. Spending cuts, not tax rises are the goal, the government said
Borrowing from the pension reserve fund:
Some EUR3.06 billion will be tapped from that fund to “cover some treasury needs,” said Santamaria
No further details
Creation of independent agencies for budget monitoring:
EU has been asking for such a measure and the government said Thursday that will be used to help it comply with the budget deficit
New laws:
43 new laws to help reform the economy will be rolled out over the next few months
A light recession for 2013:
Budget Minister Cristóbal Montoro Romero said Spain will see GDP drop 0.5% in 2013
Budget deficit goals:
Montoro said Spain will meet its deficit to gross domestic product target of 6.3% for 2012
That number is 4.5% for 2013, 2.8% for 2014 and 1.9% for 2015
Markets reaction:
The euro initially dropped, falling to $1.2842 from $1.2857 just before Spain’s announcement
It later rebounded to $1.291
Spanish bond yields held steady, down 12 basis points to 5.91%
European stocks tracked by the Stoxx Europe 600 index added 0.3% to 271.65 after a bumpy session
U.S. stocks initially pared gains before rebounding to hit session highs
The Dow Jones Industrial was up 88 points as of Wednesday afternoon
And here is what analysts say:
Soledad Pellon, market strategist at IG Markets in Madrid:
“The budget estimates seem good, but from my point of view they are unrealistic because they start from the premise that Spain’s GDP will contract by 0.5% next year, which is an estimate that is too optimistic.”
Simon Smith, head of research FxPro:
“Spain is right to concentrate more on spending cuts versus revenue increases, but even a near 4% rise in the latter looks a long shot with the economy still contracting.”
Markets will now be “more expectant of a bailout announcement in the near future, with the budget minister stating that the measures went beyond EU recommendations and that a bailout decision will be made once all the information is available
Stephen Pope, managing partner, Spotlight Ideas:
 “The government has tried to play both sides of the street
 Please the public by boosting pensions and grants but this is done by borrowing EUR3Bn from its social security reserve to cover funding costs!
“This was far from Madrid’s finest financial hour…it is an artistic budget that suspends all reality.”
Predrag Dukic, equity sales, CM Capital Markets:
“Some people were expecting the government to seek a bailout today
Whilst this was always unlikely it is clear that we expected braver moves from the government. ”
David Song, currency analyst at DailyFX.com:
“Their comments about tapping into the pension fund helped to prop up market sentiment because it shows Spain is taking these measures to try to address their own issues.” That hit the dollar, he said.
The week isn’t over yet:
Speculation that Moody’s review of Spanish debt will be announced on Friday as well as results from bank stress tests later in the day

Barbara Kollmeyer