Spain reveals deficit over-run, enacts 8.9 bn euro in cuts

30th December 2011, Comments 0 comments

Spain's new right-leaning government imposed Friday 8.9 billion euros ($11.5 billion) in a first round of spending cuts, saying the deficit had far overshot a 2011 target.

Freshly installed after beating the Socialists in November 20 elections, Prime Minister Mariano Rajoy's administration said it had found the books in a bad state and the cuts would have to run deep.

The government froze public sector wages and new hiring, angering unions, but it also allowed pensions to rise by one percent in 2012 and it continued minimum payments to the jobless whose benefits run out.

The 2011 public deficit was "much higher" than had been forecast by the last government, Rajoy's powerful deputy, Soraya Saenz de Santamaria, told a news conference after a weekly cabinet meeting.

Spain's deficit, closely watched by financial markets, would be equal to about eight percent of gross domestic product in 2011, veering well beyond the official 6.0-percent goal, she said.

"It is substantially higher, a much higher figure than had been communicated and promised by the previous government," she said.

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.

He had predicted 16.5 billion euros in savings for the year, and an extra 10 billion euros for each percentage point of deficit slippage: a calculation that could extend the New Year cuts to nearly 40 billion euros.

Public sector workers, who took a five-percent pay cut in 2010 and a pay freeze in 2011, would have their wages frozen again in 2012, the deputy premier said.

The government clamped down a public sector hiring freeze, too, except for basic services such as education, health and security forces.

"It is a new attack on public sector employees' working conditions," said the public sector workers' main union, the CSI-F, complaining that they were being made to take the blame for the spending overshoot.

"Public sector workers have become the whipping boy again to help the state deficit," said a statement by the General Workers Union.

There was a small dose of good news for the near five million unemployed, who represent an estimated 21.5 percent of the workforce; the government extended beyond February a 400-euro-a-month payment for people whose unemployment benefits have run out.

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

Ministers have promised to 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.

© 2011 AFP

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