Spain unveils dramatic salary cuts

Spain announced dramatic cuts to public sector salaries on Wednesday as Europeans faced up to the reality of their massive debt crisis.

Spain unveils dramatic salary cuts

Spain announced dramatic cuts to public sector salaries on Wednesday as Europeans faced up to the reality of their massive debt crisis.

France announced worse than expected growth figures, Austria admitted that its recovery had stagnated and Greece and Romania confirmed they were still in recession, while Germany put a brave face on weak but positive results.

But, Wednesday's most severe new measures came in Spain, home to the eurozone's third largest deficit after Ireland and Greece, where Prime Minister Jose Luis Rodriguez Zapatero ordered a five percent public sector wage cut.

Government salaries and pensions, except for those for the poorest, will remain frozen in 2011, he said, admitting that this would have "an obvious social impact" in a country struggling with 20 percent unemployment.

This sparked union anger at the government's toughest moves yet to rein in a budget deficit some feared could spill over into a bigger version of the Greek crisis.

Prime Minister Jose Luis Rodriguez Zapatero's fresh austerity measures came days after a $1 trillion fund was established to prop up weaker euro zone states and hours after U.S. President Barack Obama pressed him to be "resolute" in efforts to implement economic reforms.

"We need to make a singular, exceptional and extraordinary effort to cut our public deficit and we must do so now that the economy is beginning to recover," Zapatero told parliament.

Civil service salaries will be cut by 5 percent in 2010 and frozen in 2011, said Zapatero. The move was badly received by unions which, while so far maintaining good relations with the Socialist government, have already put the brakes on a government move to raise the retirement age to 67 from 65.

"These moves confirm the government is bent on harsh austerity. It's a departure from the prime minister's line until now and is going to mean a change for relations with the unions", said Candido Mendez, head of the second-largest union confederation, the UGT.

The deficit ballooned to 11.2 percent of GDP in 2009, in the wake of the global financial crisis and the collapse of a housing bubble, and Spain's economy has been the target of speculative attacks on the markets.

Spain introduced a 50-billion-euro austerity package in January, but this has not proved sufficient to quell fears of an eventual debt default, forcing the Socialist government to take new measures.

These included scrapping a 2,500-euro payout to parents for the birth of children, a key part of Zapatero's social platform. Along with the wage freeze, the new belt-tightening ought to save 15 billion euros over two years.

"Weak link"

The leader of the conservative Popular Party opposition, Mariano Rajoy, accused Zapatero of allowing government finances to deteriorate to the point that Spain had to be pushed to act by the European Union, reducing the country to a "protectorate" of Brussels.

Zapatero said the government planned to save 15 billion euros ($19 billion) in 2010 and 2011 with cuts also including a reduction of more than 6 billion in public investment.

The measures are intended to reduce the budget deficit to 9.3 percent of gross domestic product this year, from 11.2 percent in 2009. It will fall to 6 percent in 2011 to 3 percent by 2013, the government said.

Data released on Wednesday showed the economy grew for the first time in nearly two years in the first quarter, expanding 0.1 percent quarter on quarter.

The measures were announced after European Union and International Monetary Fund officials agreed at the weekend on a $1 trillion emergency fund for weak euro zone countries that have been hit by debt crises.

The decision to establish the emergency fund was squarely directed at Spain and Portugal, seen as the next two weak links in the euro zone after Greece, to come up with fast and credible measures to reduce their budget deficits.

"After the weekend EU meeting it became very clear Spain and Portugal, and particularly Spain, would have to go the extra mile in cutting the deficit," said Jose Garcia Zarate, an economist at 4Cast. "So they have done this, based on the Irish model."

Zarate added that the "cuts are taking place where it hurts," above all on civil servants' pay.


Agencies

Last Mod: 12 Mayıs 2010, 13:51
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