Spanish government announces €50 billion austerity plan

AFP - Spain's government on Friday announced plans to save 50 billion euros (70 billion dollars) over three years in a radical bid to slash its massive public deficit in line with eurozone rules.

The measure would see the shortfall at 3.0 percent of Gross Domestic Product by 2013 from an estimated 11.4 percent this year.

"The plan will result in savings for the public purse of almost 50 billion euros by 2013, from 2010 to 2013 with one goal: that the deficit will again return to 3.0 percent by 2013," Finance Minister Elena Salgado said.

Reducing the deficit "is a European requirement" but also "a necessary condition to ensure a lasting recovery" and "enhance growth," she told a news conference.

Salgado said the plan would hit all state sectors except education and research but would not affect social benefits or Spanish development aid.

"We are going to make a joint effort," in particular concerning "a reduction of spending on personnel" in state institutions but it would be up to each ministry to decide where to make specific cutbacks, she said.

The European Union limits public deficits to 3.0 percent of GDP for the 16 countries, including Spain, that share the euro single currency.

Salgado said the government estimates Spain's public deficit -- which reflects spending by the central and regional governments as well as the social welfare administration -- was a whopping 11.4 percent of GDP in 2009, up from a previous estimate of 9.5 percent.

Spain posted a public surplus of 2.2 percent as recently as 2007.

But the country has since undergone one of the most dramatic reversals in Europe in its public accounts as the government boosts spending to tackle the worst recession in decades, which drove the unemployment rate to almost 19 percent for the fourth quarter of 2009 and caused revenues to plunge.

The country's GDP shrank 0.3 percent in the third quarter, its fifth straight quarterly decline, even as the eurozone officially joined the United States and Japan in emerging from recession during the same period.

Salgado said the Socialist government is maintaining its prediction of a 0.3 percent contraction in the economy for 2010 and a return to growth of 1.8 percent in 2011 and 2.9 percent in 2012.

Europe's fifth-biggest economy has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fueled domestic demand and a property boom boosted by easy access to loans.

Now experts have expressed fears that Spain could find itself mired in the kind of crisis that has hit Greece, which is struggling under the twin burden of massive debt and a runaway public deficit.

Deputy Prime Minister Maria Teresa Fernandez de la Vega said Friday that the government had approved a plan to raise the official retirement age from 65 to 67 to help the social security system cope with a rapidly ageing population.

The plan, which must still be debated in parliament, would be introduced gradually from 2013.

The announcements came the same day as official data showed Spain's jobless rate soared to 18.83 percent in the fourth quarter, one of the highest in the 27-nation European Union and far above the average of 10 percent for the 16 countries that share the eurozone.

Salgado Friday raised the government's prediction for the 2010 unemployment rate to 19 percent from 18.9 percent.

One analyst was sceptical that the new government measures would succeed.

They "are unlikely to offer the markets much comfort," said Ben May of the Capital Economics research consultancy. "The risks are clearly on the downside."

But "a full-blown crisis similar to that seen in Greece looks unlikely -- Spanish public sector debt is far lower than Greece’s. What’s more, Spain does not have the credibility deficit that has been a key factor behind the Greek bond sell-off," May said.