Spain backs pension reform, asset sales to ease debt pressure

3rd December 2010, Comments 0 comments

Spain's government Friday set a date to raise the retirement age and backed multi-billion-euro sales of stakes in the lottery and airports in a bid to ward off debt pressures threatening the country.

Prime Minister Jose Luis Rodriguez Zapatero pulled out of a Latin American summit to attend a cabinet meeting Friday on the economic crisis, sending a powerful message about Spain's determination to avoid a Greek-style debt debacle.

The Socialist government will approve on January 28 a plan to gradually raise the retirement age from 65 to 67, fiercely opposed by unions, Deputy Prime Minister Alfredo Perez Rubalcaba said.

"We have agreed that the government will approve the reform of the pensions system on January 28 in order to send it to parliament," he told a news conference after a cabinet meeting.

The government floated the plan more than one a year ago, aimed at ensuring the social security system remains viable amid a rapidly ageing population and strained public finances.

But tens of thousands took to the streets across Spain in February to condemn the proposal.

Ministers Friday also agreed to boost the state coffers with asset sales and to cut taxes on small- and medium-sized business, Finance Minister Elena Salgado told the same news conference.

She also announced a hike in tax on tobacco sales, which would bring in additional revenues of 780 million euros.

The asset sales, unveiled two days earlier by Zapatero, included:

-- Selling up to 30 percent of the state-owned lottery, an option the government said it was not even considering as recently as January. Loterias y Apuestas del Estado posted a net profit of 2.99 billion euros in 2009, up 3.5 percent increase despite an economic crisis.

-- Selling up to 49 percent of airport management company AENA, a significant increase from original plans to cede 30 percent.

The measures follow weeks of market turbulence over fears that Spain could follow Greece and Ireland in seeking an EU bailout.

The Madrid stock market was virtually unchanged following the announcement, up just 0.08 percent.

Spanish media said the country could net as much as five billion euros (6.5 billion dollars) from the privatisation of the lottery and nine billion euros from the sale of the stake in AENA.

Salgado earlier said the sales would allow Spain to cut new borrowing from the markets by a third in 2011, lowering bond issues to 30-31 billion euros from the 45 billion euros originally planned.

"That will allow us to reduce our stock of debt," she said in an interview with the Financial Times published Thursday.

Even with a reduction in new debt issues, the central government has to repay 120 billion euros in existing debt that matures in 2011, according to Treasury figures.

That figure excludes the debt racked up by Spain's semi-autonomous, heavily indebted regional governments.

The government earlier this year introduced tough austerity measures in a bid to slash its soaring public deficit, including pay cuts for civil servants.

It aims to rein in the deficit from 11.1 percent of Gross Domestic Product last year, the third highest in the eurozone after Greece and Ireland, to 3.0 percent -- the EU limit -- by 2013.

The Spanish economy slumped into recession in late 2008 due to the bursting of a decade-long property bubble and the global financial meltdown.

It emerged with tepid growth of just 0.1 percent in the first quarter of this year and 0.2 percent in the second but then slipped back to zero percent in the third.

© 2010 AFP

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