Spain to slash spending in 2009 by EUR 1.5 bn

11th February 2009, Comments 0 comments

The spending cuts, which will be applied to all ministries, is welcomed by the main opposition conservative Popular Party.

MADRID – Spain will slash state spending in 2009 by EUR 1.5 billion to rein in its public deficit amid a sharp economic contraction, Prime Minister Jose Luis Rodriguez Zapatero said Tuesday.

"To maintain social spending it is necessary to use with maximum prudence the budgetary margins and carry out a great effort of austerity in public spending," he told parliament.

The spending cuts, which will be applied to all ministries, will be approved at the government's next cabinet meeting, Zapatero said.

The prime minister also said his government was looking into a way to "increase and extend unemployment benefit coverage, whatever the number of unemployed there may be".

Spain's unemployment rate hit 13.9 percent in the last quarter of 2008, the highest in the 27-nation European Union, and the government expects it will rise to 15.9 percent this year before starting to gradually decline.

Under Spain's welfare system, workers can receive unemployment benefits for a maximum of two years, meaning those who lost their jobs since the tide turned in mid-2007 will no longer get payments by the middle of this year.

The Spanish economy, the fifth-largest in Europe, is facing a sharp economic contraction. A decade-long real estate boom has come to an abrupt end due to the international credit crunch, oversupply and higher interest rates.

Zapatero said Spain's economy fell into recession in the last quarter of last year and he predicted the country's key building sector would rebound in 2011.

The national statistics institute is expected to publish data on Thursday that shows Spain's gross domestic product (GDP) contracted in the fourth quarter of 2008 after declining in the third quarter.

Two quarters of quarterly GDP contraction in a row is a widely accepted definition of recession.

The government's response to Spain's first recession in 15 years has been an 11-billion-euro infrastructure plan to create over 300,000 jobs, mainly through 31,000 public works projects across the country.

Zapatero has also set up a special fund of EUR 50 billion for acquiring bank shares in order to make cash directly available to lenders and has vowed to maintain Spain's social safety net during the slowdown.

The government austerity plan unveiled Tuesday would not affect spending on the measures announced to relaunch the economy, civil servant salaries or social spending programmes, Zapatero said.

The increased spending on stimulus measures and unemployment and other benefits has raised concerns over the state of Spain's public finances.

In January, Standard and Poor's lowered its rating on debt issued by Spain, a move that will likely make raising money in debt markets more expensive for it.

Spain, which posted a budget surplus between 2004 and 2007, expects its public deficit will climb to 5.8 percent of gross domestic product in 2009 from 3.4 percent last year.

The leader of the main opposition conservative Popular Party, Mariano Rajoy, welcomed the austerity measures but said Zapatero had taken too long to rein in spending.

"You should have taken this measure three months ago. You lost too much time," he said.

[AFP / Expatica]

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