Spain announced plans Friday to make 27 billion euros worth of cuts in its 2012 budget, including a freeze on public workers' salaries. The austerity measures come a day after a general strike that saw violent clashes between protesters and police.
AFP - Spain will make budget cuts worth more than 27 billion euros ($36 billion) in 2012, including a freeze on public workers' salaries, to rein in its public deficit, the government said Friday.
Government ministries will have an average reduction in their budgets of "around 17 percent" this year, Deputy Prime Minister Soraya Saenz de Santamaria said after a weekly cabinet meeting that approved the 2012 budget.
"We are in an extreme situation. Our top priority is to clean up public accounts," she said.
"This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs."
Spain is racing to reduce to reduce its public deficit to reassure markets that it will not follow Greece, Ireland and Portugal in requesting an international bailout.
The government unveiled its austerity budget for 2012 a day after a general strike against spending cuts and labour market reforms that make it easier to cut jobs, when violence flared at protests in some cities.
Hundreds of thousands of protesters swamped Spain's streets on Thursday to back the strike, marred by clashes in Barcelona where youths set fire to bins and a Starbucks coffee shop.
Unions said nearly a million people took part in Madrid alone to denounce labour reforms, spending cuts and soaring unemployment in a country mired in recession. The interior ministry put turnout in Madrid at just 85,000.
As the government unveiled its budget, finance ministers from the eurozone were meeting in Copenhagen to decide on the size of a financial firewall for the eurozone.
This firewall is intended to ensure adequate funds would be available to support weak eurozone countries suffering new debt strains, and thereby calm tension on financial markets.
Spain, having overshot its public deficit target last year, is once again a focus of concern among economists and investors.
Prime Minister Mariano Rajoy has said he is determined to keep his promises to eurozone partners to slash the deficit, even at a time of soaring unemployment and recession.
The Popular Party government must bring down the public deficit to the equivalent of 5.3 percent of economic output this year from 8.51 percent last year.
That would mean at least 20-30 billion of euros ($26-40 billion) in austerity measures, on top of 8.9 billion euros in spending cuts and 6.3 billion euros in tax increases already announced this year.
The task is complicated by the recession, with the government predicting a 1.7-percent slump in economic output this year.
Jose Carlos Diez, analyst at Intermoney brokerage, said other countries had shown that reducing the deficit in a recession is difficult because it cuts government receipts and raises expenses for unemployment benefits.
"Suddenly you are rowing against the current, with a capacity to row but in the end you tire out," he warned. "Spain needs more time but Brussels does not seem disposed to give it."
While the Spanish government plans to freeze public sector workers' salaries -- which were cut by the previous Socialist government -- it ruled out raising sales tax and said pensions would still be raised.
"We have decided to continue to raise pensions, freeze the salaries of civil servants but not cut them and maintain unemployment benefits and spending on internships," said Saenz de Santamaria.
Financial group Citi's chief economist Willem Buiter said Spain would likely need emergency help from international lenders this year to shore up its banks and public finances.
"Spain looks likely to enter some form of a troika programme this year" to ensure access to favourable credit, he wrote in a report, referring to the European Union, European Central Bank and International Monetary Fund.
He forecast a 2.7-percent contraction this year in the Spanish economy and warned that debt may be higher than previously thought.
Date created : 2012-03-30