Spain budget: Cuts risk downward spiral

 

The Spanish government said this was the most austere budget since Spain became a democracy in 1977.

And so it was.

Ministries will face cuts to their budgets of around 17%. That is higher than expected.

The aim is to make savings of 27bn euros ($36bn; £22.5bn) in 2012.

The salaries of public sector workers will be frozen and they will be expected to work longer hours for the same pay.

Electricity prices will go up by 7%.

But the government has been mindful of the country's high unemployment rate - currently running at 24%.

Unemployment benefits will be maintained and pensions will continue to rise.

VAT won't go up but taxes will for large companies.

A government minister said Spain needed to tighten up its finances to meet EU targets for reducing deficits without stifling economic growth and job creation.

That is the challenge.

Privately some in government accept these calculations involve a risk.

The economy is in recession and some predict it will shrink by around 2% this year - even before these savings are made.

The fear is that Spain could be tipped into a downward spiral.

It is also unclear how the public will react to more austerity. The unions held a general strike yesterday and are threatening further disruption.

 
Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • Comment number 122.

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    Comment number 121.

    #119 "Surviving" means that they do not want the cost of living to rise further. In Greece, the cost of living is going up (lots of import, priced in euros). In case of an Euro exit, the price of imports in the new currency will be even higher. Neither Greece nor Spain export many unique products which are in heavy demand. Hence an individual household klings to what it values, i.e. euros.

  • rate this
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    Comment number 120.

    119.Atomic_Mash

    "...with the giant dead weight of the euro hanging round their neck..."

    ===

    I would expect that with the terror of Franco's fascists clearly in the collective memory, they will see this with a well-grounded sense of proportion.

    It's almost a pity others don''t have this calibration.

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    Comment number 119.

    #117 With youth unemployment hitting a staggering 50%, overall unemployment expected to hit 25%, and with one of the highest rates of personal debt, millions are worried about surviving, not saving. And with the giant dead weight of the euro hanging round their neck, there is nothing the gov't can do except cut and hope for a future bailout... but hey, part of the eurozone they'll remain

  • rate this
    +1

    Comment number 118.

    101 "so why would I feel sorry for a nation that has done the same thing?" That's right. If you are American, you'd better stop worrying at all about Spain and start learning Chinese. Mandarin and Cantonese both preferably. For you, Europe might well be in your past, and China in your future. You might still come out of the casino with no clothes on.....

 

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