Package of austerity measures announced to cut budget deficit

Thu, May 13, 2010, 01:00

SPAIN:AFTER MONTHS of denying the existence of a financial crisis, Spanish prime minister José Luis Rodríguez Zapatero finally admitted the gravity of the situation and yesterday announced austerity measures. He said his aim was to reduce Spain’s budget deficit, 11 per cent of GDP, to about 6 per cent in 2011.

Over four million Spaniards – 20 per cent of the workforce – are unemployed, the highest figure since 1989 and Mr Zapatero has repeatedly said his priority was jobs. But the situation has forced him to change policies and make often-painful cuts.

Starting at the top, Mr Zapatero and his ministers are to take an immediate 15 per cent salary cut, and public sector workers will see their pay cut by 5 per cent.

Five million pensioners, some of whom receive just €600 a month, will be hit when their state pensions are frozen and not adjusted to annual inflation rates.

The so-called “baby cheque”, the €2,500 payout to parents of new babies, introduced only last year, has been scrapped. Prescription and non-generic drug prices will also come down.

The autonomous regions will have to make their own sacrifices when regional funding is reduced by €1.2 billion, and development aid will be cut by €600 million. Other measures include a reduction in state investment, particularly in public works like new high-speed rail lines and motorways.

In a heated debate in parliament yesterday, Mr Zapatero denied that Spain was following Greece towards bankruptcy. “Do not compare Spain with Greece. Spain is strong and solvent,” he snapped at Mariano Rajoy, the conservative leader.

Mr Rajoy said the government should have acted 18 months ago, when he had first called for drastic action.

The unions have condemned the measures and have warned of demonstrations and “massive action” if they are approved at next Friday’s cabinet meeting.

Former economy minister Pedro Solbes, who resigned his cabinet seat last year when his call for austerity measures was not accepted, yesterday welcomed the proposals.