Spain debt rises on aid to banks, regions, finance cost Sun Sep 30, 2012 1:37am EDT MADRID (Reuters) - Spain's debt levels are set to rise next year, piling pressure on the government to apply for aid as it pours funds in to cash-strapped regions, an ailing banking system and rising refinancing costs, its budget showed on Saturday. Spain's debt as a ratio of gross domestic product will reach 90.5 percent by end 2013, according to the document presented to parliament for approval, almost three times that registered before the property bubble burst in 2008. The budget aims to make savings of around 13 billion euros ($16.7 billion) next year, largely by deepening already unpopular cuts in public sector wages, education, health and social services, fuelling anti-austerity protests. Calls by wealthy northeastern region Catalonia for independence and the rising number of demonstrations on the streets of major cities have stoked doubts Spain can fix its problems without help. Thousands of protesters gathered on Saturday in Madrid's Neptune plaza, between the Prado Museum and Parliament, for a third time this week to vent anger at politicians they accuse of pillaging the welfare state to bail out badly-run banks. This has to change. We have to show them we are not an anti-system minority but represent Spain's discontent and we are many. You only have to see the unemployment rate to see that," said state school teacher, Montse, 44, who was at the march with her unemployed husband and 11-year-old daughter. Unemployment in Spain is more than double the European Union average, with half of all working-age under-26s unable to find jobs and shattered businesses laying off employees they cannot afford to pay. Rajoy, who said he is considering the conditions behind any aid request, is widely expected to wait until after regional elections in Galicia and the Basque Country before taking any decision. Spain will also slash state funding to commerce, tourism and small, and medium-sized companies by 18.8 percent and infrastructure by 13.5 percent. The government will increase its reliance on international markets for funding next year, with gross debt issuance requirements of 207.2 billion euros, after budgeting in 2012 for gross issuance of 186.1 billion euros. The cost of financing its debt, as benchmark 10-year bond yields rise to near unsustainable levels of above 6 percent, is expected to increase to 38.6 billion euros, or 3.6 percent of GDP, in 2013, the budget showed. The Treasury must pay debt redemptions of 159.2 billion euros in 2013, up slightly from 153.2 billion euros in 2012. The increase in the debt-to-GDP ratio was due the economic crisis and the effect of state instruments on public accounts, the Treasury said in the document. The instruments include the power deficit bond programme, FADE, the service provider fund for regional governments, Spain's part in aid granted to Ireland, Greece and Portugal and the recapitalization loan for the country's banks, it said. But many economists expressed doubt Spain's conservatives would be able to raise the cash the budget demanded as pension and debt-servicing costs rise. "My general view is that this is an optimistic budget, in the sense that predictions for the contraction in 2013 are very optimistic," said Xavier Vives, economist at business school IESE, adding he expected the plans to be revised as with every other budget over the last four years. The budget is based on the assumption GDP will shrink by 0.5 percent in 2013 year-on-year, though most economists expect a deeper slump. Additional reporting Carlos Ruano, Nigel Davies and Paul Day; Writing by Paul Day; Editing by James Jukwey and Sophie Hares