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, Europe editor Article written by Gavin Hewitt Gavin Hewitt Europe editor


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  • rate this

    Comment number 1.

    Feel extremely sorry for the ordinary Spanish. Regarding economic recovery, not just in Spain but everywhere, I simply haven't a clue as to what is the best solution anymore. Four years of this nonesense as left me completely overwhelmed, and the mess seems to be too colossal for anyone to adequately deal with.

  • rate this

    Comment number 2.

    A big well done to the euro and the EU. You have successfully destroyed Greece, now you are looking to do the same to Spain.

  • rate this

    Comment number 3.

    I’m surprised these politicians ever manage to get into office, they really don’t seem to be able to strike a reasonable balance between the need to cut budgets and to encourage growth. Spain needs growth, and their fragile economy will be very sensitive to any cuts. This is economic suicide:- Greece 2011/12 = Spain 2013/14

  • rate this

    Comment number 4.

    Ultimately a self defeating programme that even if it reduced the deficit (unlikely) it will do long term damage to the economy and to social cohesion. The only thing positive is that it is not as brutal unfair and stupid as the austerity programme in Greece but it will spark further demonstrations and riots. There will be an Athens and a Madrid Spring.

  • rate this

    Comment number 5.

    Spain is not going to be able to service its debts, speculators will have a close eye on things, and a disenfranchised public will be looking to vote anyone in that is anti austerity, unemployment has gathered momentum, house prices are crashing, how can there be a way back from this.


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