Spain unveils deep budget cuts amid EU economic fears

Spanish Prime Minister Jose Luis Rodriguez Zapatero addressing parliament, 12 May 2010 Prime Minister Zapatero has been under pressure to make faster cuts

Spain's PM has outlined a plan to tackle the country's budget crisis, amid concerns that problems afflicting Greece may spread across the eurozone.

Jose Luis Rodriguez Zapatero announced a 5% cut to public sector salaries, as well as reductions to pensions and regional government funding.

He said the plan would save about 15bn euros ($19bn; £12.5bn) over two years.

At the weekend Spain said it wanted to drastically reduce its budget deficit, which currently stands at 11% of GDP.

The aim of the new package is to trim this deficit to 6% of GDP in 2011.

In his speech to parliament, Mr Zapatero revealed other details of the plan. Automatic increases in pensions will be suspended from 2011 and funding for regional governments cut.

"We aim to cut civil service wages by an average of 5% in 2010 and freeze them in 2011," he added.

He said his own salary and those of senior cabinet members would be cut by 15%.

SPANISH COST-CUTTING PLAN

  • 5% average pay cut for public workers in 2010
  • Payout scrapped to parents for birth of children
  • Automatic inflation-adjustments for pensions suspended
  • Funding to regions cut by 1.2bn euros

Mr Zapatero said he wanted "to contribute, with our financial stability, to the financial stability of the eurozone".

The cabinet is to vote on the new proposals later this week.

The BBC's Sarah Rainsford in Madrid says Mr Zapatero approved an austerity package in January but that since then little has happened.

Our correspondent says Mr Zapatero had shied away from really painful measures.

But Madrid is now under pressure from the European Commission to deliver.

EU jitters

The European Union has been anxious to see more fragile European economies including Spain, Portugal and Greece impose tougher austerity measures.

On Sunday it approved a 750bn-euro rescue package to prop up European economies struggling with large debts.

Many Spaniards fear the effect the cuts will have on the economy, which has already contracted sharply, and where the unemployment rate exceeds 20% - twice the eurozone average.

Mr Zapatero was speaking as government statistics showed Spain had moved out of recession in the first quarter of this year, with growth of 0.1%.

On Tuesday US President Barack Obama called Mr Zapatero, urging him to take "resolute action".

The White House said Mr Obama was actively engaged in lessening the global impact of Europe's debt crisis.

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