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Spain’s new government decides first wave of cuts

Spaniards prepared to bite the bullet Friday as a new right-leaning government met to decide on spending cuts including a public sector pay freeze for the New Year.

Prime Minister Mariano Rajoy, the grey-bearded 56-year-old leader who won a crushing victory over the Socialists in November 20 elections, held talks with his ministers to pare back government costs.

Barely eight days after being sworn in, ministers gathered in Madrid’s Moncloa palace, expected to announce the first wave of a total 16.5 billion euros ($21.7 billion) in budget savings for 2012.

Rajoy, who leads the conservative Popular Party, has vowed to meet Spain’s target of reducing the public deficit to 4.4 percent of gross domestic product in 2012, come what may.

If, as is widely expected, Spain overshoots the 2011 deficit target, which is 6.0 percent of GDP, he has promised to extend the cuts by another 10 billion euros.

Key austerity measures expected from the meeting were:

— A public sector pay freeze to be extended for another year in 2012, already announced to unions.

— A public sector hiring freeze except for ‘esssential services’;

— A 30-percent cut in spending at government ministries, equal to a reduction of 1.9 billion euros, with official cars, food, travel and consultancies in the firing line to set a public example;

— A sharp reduction in investment in public works.

A full budget plan is to be unveiled in March when the 2011 public deficit is known, the new government says.

Only pensions will escape the knife, Rajoy has promised, and ministers are expected to raise pensions in line with anticipated 2012 inflation, reportedly by 1.0 percent.

Public sector unions, whose members took a five-percent salary cut in 2010 before the pay freeze this year, rejected the new steps after being officially informed of the plans Friday.

“It is a new attack on public sector employees’ working conditions,” said the public sector workers’ main union, the CSI-F.

Fellow union UGT denounced the steps as “an attack on the quality of public services and on the rights of all citizens,” complaining that public employees were paying the price for the state deficit.

Business daily Expansion said the new government would also abandon the previous administration’s plans to sell a 30-percent stake in the national lottery to rake in up to 7.5 billion euros ($10 billion).

The last government postponed the sale in September, blaming plunging markets that would have slashed the sale price.

Rajoy preferred to follow the model of Britain’s national lottery, with the capital remaining in state hands while the management of the lottery was privatised, the newspaper said.

The new government also may scrap a 210-euro monthly grant to young people renting homes, which had enabled more than 300,000 people to enter the property market, Expansion said.

Ministers have promised also to draw up labour market reforms, and clean up the financial sector, bogged down with dodgy property assets.

The government plans to present a labour market reform on January 7. Rajoy has asked business and union leaders to agree on changes to the collective bargaining system, hiring laws and other employment issues.