Spain unveils 2013 austerity budget, France next

Spain has announced its austerity budget for 2013, against a backdrop of a falling economy and 25% unemployment rate, as pictures of Mariano Rajoy, the Spanish prime minister, enjoying a cigar on New York's Sixth Avenue were splashed across Spanish newspapers on Thursday.

Madrid is expected to outline a further $50bn worth of savings, tax rises, and structural reforms, only a day after thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.

The government spending would be cut by 8.9% in 2013, while overall budget spending would increase by 5.6%.

This is a crisis budget aimed at emerging from the crisis, in this budget there is a larger adjustment of spending than revenue," said Deputy Prime Minister, Soraya Saenz de Santamaria, in a press conference.

Meanwhile Castile La Mancha has become the fifth of Spain's 17 regional governments to say that it will draw on a rescue fund set up by Madrid.

The central Spanish region said it would request $1.04bn euros from the $23bn Regional Liquidity Fund, joining Valencia, Murcia and Catalonia, who have collectively requested $3.85bn euros, and Andalucia who has yet to specify how much it needs.

Stocks fell sharply on Thursday, as well as a statement from the Spanish central bank that the country's economy had continued to shrink in the third quarter of the year as Thousands of protesters rallied near the Spanish parliament for a second straight night on Wednesday.

Spain, the eurozone's fourth largest economy, fell back into recession in the last quarter of 2011, the second recession since the bursting of the country's property bubble.

But with a shrinking economy and unrest in the country, reducing the deficit via further austerity measures may prove a difficult task for the government.

On Friday, the government is due to unveil an independent audit of its stricken banks to determine how much capital is needed to reinforce them from further shocks.

Meanwhile, French President Francois Hollande's government is due to present its first budget, and is expected to commit to a sharp reduction in the public deficit.

The budget will include measures to plug a 30bn euro hole in the country's finances.

Officials have suggested roughly two-thirds of the money will be come from tax rises rather than spending cuts.

The announcement comes as figures suggest the economy is struggling to achieve much-needed growth.

Hollande has said the budget will be France's toughest for 30 years.

A planned 75% tax rate to be imposed on annual income above 1m euros has met with protests from France's business community, but Hollande has suggested it could be dropped after two years.

"With constant incomes, nine out of 10 French taxpayers will not be affected by the tax increases," French Prime Minister Jean-Marc Ayrault said, according to the AFP news agency.

"These new measures spare the middle and working classes," he added.

Ayrault also said France would meet its target to get its deficit to under 3% of GDP.

In the past week, unemployment has risen beyond 3 million, the highest level it has been since France joined the euro.

Meanwhile, private sector output has fallen to its lowest level in three and a half years.

The French economy has suffered three consecutive years of zero growth.