Spanish deputies pass austerity plan by just one vote

28th May 2010, Comments 0 comments

Spanish deputies passed an austerity plan by just one vote Thursday, saving the Socialist government from probable collapse and easing markets' fears that the financial crisis would engulf its economy.

The unpopular 15-billion-euro (18.5-billion-dollar) plan, which includes a pay cut for civil servants, was passed on Thursday with 169 votes in favour, 168 against and 13 abstentions.

The governing Socialist Party backed the bill, while the conservative opposition Popular Party and other parties opposed it.

Crucially however, the 10 deputies of the Catalan nationalist CiU party were among those who abstained. Prime Minister Jose Luis Rodriguez Zapatero does not hold a working majority and must rely on smaller parties to govern.

Observers had feared that a government defeat could have forced new elections, with disastrous repercussions on financial markets already nervous about the poor state of public finances in Spain.

The country has only just emerged from a long recession.

"Everyone knows what would happen if the government had not been able to pass the bill," said Josep Antoni Duran i Lleida, secretary general of the Catalan nationalists, explaining his party's decision to abstain.

"The stock market would plunge and our debt would be hit. Our responsibility is to ensure that Spain does not fall into a deeper hole. I don't want Spain to come under protection like Greece."

But Duran i Lleida had harsh words for Zapatero, who appeared stony-faced in the chamber.

"Your time is finished...," he told him.

"When the (2011) budget vote comes and when you cannot pass it, call elections that the country wants and needs."

Zapatero, under pressure from both Spain's EU partners and the markets, announced the austerity measures on May 12 in a bid to shore up Spain's public finances amid fears it could follow Greece into a debt crisis.

The cuts are on top of a 50-billion-euro austerity package announced in January designed to slash the public deficit to the eurozone limit of three percent of gross domestic product by 2013. Last year it stood at 11.2 percent.

Unions representing public sector workers have called a strike for June 8 over the plan while Spain's largest trade union, the CCOO, said last week it would "probably" also call a national general strike.

The plan would lead to weaker growth, "hindering economic recovery and probably generating an increase in unemployment," CCOO leader Ignacio Fernandez Toxo said Thursday.

He also warned of a general strike if the government went ahead with "prejudicial" reforms to the country's strict labour market rules.

Unions are negotiating with the government over labour reforms announced by Zapatero in February.

The latest austerity measures include an average five-percent pay cut for public sector workers from June and a pay freeze from 2011. Pensions, except for the poorest, will also be frozen in 2011.

In what was seen as a bid to boost plummeting public support for his government, the prime minister also plans to announce a new tax on the richest people in the country.

"These measures are painful but essential," Finance Minister Elena Salgado told parliament.

German Economy Minister Rainer Bruederle hailed the Spanish approval of the "severe" austerity measures.

"We can only achieve durable stability of the euro if each eurozone member contributes to structural measures," he said.

Analysts said the vote would help calm the markets, but the government still had to avoid any temptation to water down the proposals or the labour reforms.

"The government needs to demonstrate a strong control of the situation, helping to ease market fears that the current administration will be unable to deliver better fiscal discipline or implement effective labour market reform," said Raj Badiani, senior economist at IHS Global Insight.

Spain entered recession in the second quarter of 2008 as the global financial meltdown compounded a crisis in the property market, a major driver for growth in the preceding years.

Official data released last week showed the economy returned to growth in the first quarter but analysts have warned that any pick-up could be short lived.

The long period of negative growth sent Spain's unemployment rate soaring to more than 20 percent in the first quarter, the highest in the 16-nation eurozone.

© 2010 AFP

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