Sun, Apr 01, 2012 - Page 11 News List

Spain reveals deep cuts to meet deficit goal

Reuters, MADRID

Spain announced deep cuts to its central government budget on Friday as it battles to convince European partners and debt markets it can rein in its budget deficit in the face of growing public complaints.

The government said it would make savings of 27 billion euros (US$36 billion) for the rest of this year from the central government budget, equivalent to about 2.5 percent of GDP. The figure includes tax rises and spending cuts of about 15 billion euros announced in December.

The cuts come despite popular resistance — a general strike on Thursday disrupted transport, halted industry and saw some minor violence — and against a grim economic backdrop; Spain is thought to have fallen back into recession in the first quarter and has the highest unemployment rate in the EU.

“Everyone knows the difficult problem we face in this country, and it calls for special efforts in fiscal consolidation and structural reforms to grow and create employment,” Spanish Deputy Prime Minister Soraya Saenz de Santamaria said after the weekly Cabinet meeting.

The center-right government, which swept to power in November with the largest parliamentary majority in 30 years, has already passed labor market and banking sector reforms that it says can improve competitiveness and -reduce wage costs.

EU partners have agreed to let Spanish Prime Minister Mariano Rajoy aim for a total deficit this year at 5.3 percent of GDP, a less demanding goal than the 4.4 percent originally suggested, but substantially less than last year’s 8.5 percent.

Speaking in Copenhagen after an EU ministerial meeting, Spanish Economy Minister Luis de Guindos said the measures would be implemented as soon as possible, adding that any suggestions that Madrid needed emergency international funds was “absurd.”

Spain is trying to assure its EU partners that it is in control of slashing its deficit and to avoid needing a bailout package like that of smaller neighbor Portugal.

“What comforts markets are domestic policies. If we don’t do what is needed, then there will be no rescue fund that is big enough,” De Guindos said.

Finance ministers agreed on Friday to increase a financial firewall to 700 billion euros to ward off fears the eurozone debt crisis could spill over to Spain or Italy, much larger economies than those bailed out previously.

The Spanish government said it was aiming for a central government deficit equivalent of 3.5 percent of GDP, a deficit of 1.5 percent of GDP coming from Spain’s regions and a balanced social security budget. Smaller local authorities expect a deficit equivalent to 0.3 percent of GDP.

The regions announced a deficit of 2.9 percent of GDP last year, meaning they would have to cut about 15 billion euros to meet this year’s target.

Details were scarce, with the government due to set the budget before parliament on Tuesday.

The government said it would slash spending by 16.9 percent across the ministries, with spending at the foreign ministry cut by more than half, and the Industry, Energy and Tourism Ministry taking a cut of more than 30 percent.

Total cuts of more than 42 billion euros, between the central administrations and the regional authorities, could be tough for an economy struggling to grow, economists say.

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