Paying for power
Spain's government will guarantee up to €10 billion in debt issued by power companies this year to cover the gap between the price Spanish consumers pay for electricity and the cost of producing it. The government will also give a guarantee for debt related to that difference for the entire period from 2009 to 2012, the Industry Ministry said in a release. The accumulated tariff deficit, from previous years up to now, adds up to €16 billion, the government said.

The government also said that Spanish power companies will have to pay for the management and storage of nuclear waste themselves, which so far adds up to €2.7 billion. The difference between the cost to the utilities of generating electricity and the income from selling it on the regulated market has ballooned in the past year due to increasing energy costs. Endesa (ELE.MC) is owed about 4.4 billion euros of accumulated tariff deficit, while Iberdrola (IBE.MC) has 3.3 billion due to it and Union Fenosa's UNF.MC figure is about 1.9 billion.

The deficit appears on the companies' balance sheets as receivables until the amounts are securitized, putting pressure on liquidity since they form a long-term debt. Aside from a massive and unpopular hike in customers' electricity bills, the government could lower the deficit by increasing its CO2 clawback tax or reducing the premiums paid to renewable energy to lower the deficit, analysts said. The government has said it expects power companies to give ground in upcoming talks on deficit reduction.

House of Cards
Spanish real estate and construction firms are suffering a significant correction in their stock prices. This has sparked questions about the health of the sector, and alarmed investors and families that have mortgages to pay off. According to some organizations, people's homes could be overvalued by as much as 30%.

The construction sector has been one of the country's motors of growth, so its cooling down could also affect the GDP. Construction and real estate firms hold over a quarter of debt in Spain and represent over a quarter of all suspended debt payments, according to Bank of Spain and government data. Many Spanish property firms are struggling to sell assets to pay down debt accumulated in Spain's decade-long housing boom. Spanish property firms have suffered falls of over 30 percent in house sales this year as the real estate sector seizes up in a global financial liquidity squeeze. Will the spending cuts and possible tax hikes save Spain and the EU, only time will tell.