MADRID, Spain

COULD Spain be the next Greece? The government bristles at the very thought, and points out its debt burden isn’t nearly as heavy.

It’s a stinging comparison nonetheless for a country that only a few years ago had burgeoning growth but is now lumped with other deficit-laden countries on a watch list for a Greek-style crisis.

The collapse of a real estate- and consumer-fuelled boom has left Spain with a eurozone high jobless rate of nearly 20 per cent, and the government ran up a deficit that in 2009 equalled 11.4 per cent of GDP. That is way over the eurozone limit of three per cent and earned Spain a place as the letter “S” in the inelegant PIGS acronym coined by analysts (the others are Portugal, Ireland, and Greece).

Spanish officials argue they are better off in several respects. National debt as a proportion of GDP — 66 per cent this year and peaking at 74 per cent in 2012 — is well below the EU average and far under Greece’s 113.4 per cent for 2009.

It does not have credibility problems like Greece, which is accused of fudging its debt numbers, and its banking system is relatively sound compared with other countries that had to bail their banking systems out.

Still, Spain has tried to spend its way out of recession with costly job-creation and stimulus measures, running up a budget shortfall that has spooked markets and lenders. Spanish sovereign debt has come under pressure, with creditors demanding a steeper interest rate to buy it and rates also rising for insurance against default.

Spain’s economy is much larger than that of Greece, so it’s a far bigger problem for the European Union and the euro if markets begin to doubt Spain’s ability to pay.

If there is an EU country next in line for troubles with financing itself, it is Spain, even if the likelihood of this is low for now, said Javier Diaz-Jimenez, an economist at Madrid-based IESE Business School.

“Spanish public finances are under severe stress. Nobody in their sane mind can deny that,” he said.

Spain’s Socialist government rejects suggestions that the eurozone’s fourth-largest economy, which had posted budget surpluses and robust growth as recently as 2007 but has suffered dearly following the collapse of a real estate bubble, has a debt mess similar to Greece’s, which has driven down the euro and shaken the European Union.

But Spain did see fit to dispatch a team led by Finance Minister Elena Salgado to London and Paris last week to meet with ratings agencies and investors in an effort to explain Spain’s deficit-reduction plans and restore its credibility.

And at times the government has looked on the defensive.

Last week it sent Brussels a document that raised the possibility of lowering most Spaniards’ retirement pensions by changing the way it measures their working life. Amid a furious outcry from unions, hours later the government literally erased that paragraph from the document, saying it was not a firm proposal but rather an accounting simulation.

This fuelled long-standing criticism from opposition conservatives that the government lacks a coherent policy to confront the recession and just makes things up as it goes along. Polls say that if elections were held now, Prime Minister Jose Luis Rodriguez Zapatero would lose to the centre-right Popular Party.

One of the government’s most prominent spokesmen, Infrastructure Minister Jose Blanco, also raised eyebrows by saying that shadowy outside forces are ganging up on Spain. He said: “Spain is the victim of an international conspiracy designed to destroy the country’s economic status and, then, the euro.”

The deficit-cutting blueprint calls for euro50 billion (US$70 billion) in budget cuts over the next four years, with the goal of cutting the deficit to the EU limit of three per cent in 2013.

When Salgado announced it, she left out the deficit numbers for the intervening years, and markets were rattled when days later Spain released projections for them that were about two points higher than they had previously banked on.

There are also concerns that the plan is short on details and not aggressive enough.

Ireland, by comparison, has slashed pay for state workers, cut welfare benefits and imposed new environmental taxes on fuel to try to contain its runway deficit.

But Spain is not touching public-sector wages, most of the spending cuts have been assigned to regional governments that Madrid cannot control, and the only taxes due to rise are VAT and levies on capital income like stock dividends. This is not expected to make a big dent, and even then the rises do not kick in until July.

Compared with Ireland’s, or even Greece’s deficit-cutting plans, Spain’s ideas “look pretty paltry”, said Ben May of Capital Economics Ltd in London.

Another problem is that Spain’s plan is predicated on forecasts of economic growth resuming relatively soon, thus raising tax revenue and easing the government’s unemployment benefit payout load.

However, the International Monetary Fund has said Spain will be the world’s only major economy not to post year-on-year growth in 2010, and that its economy will expand only 0.9 per cent in 2011.

“I think it would be very unlikely that the deficit gets anywhere near three per cent unless they implement further, significant fiscal measures,” May said.

Nuno Serafim of IG Markets said Spain and also Portugal need to serve up a bitter cocktail of higher taxes and deep spending cuts, but this is a hard sell because of the entitlement-heavy mentality of people in southern Europe.

“Governments in southern Europe are less pragmatic than in northern Europe,” he said. “Normally, they try to avoid unpopular policies because they are more prisoners of the political agenda and the electoral agenda.”