Spain's new leader vows 16.5-billion-euro cuts

19th December 2011, Comments 0 comments

Spain's incoming prime minister Mariano Rajoy vowed on Monday to slash the public deficit by 16.5 billion euros ($21.5 billion) with deep spending cuts to rescue the economy from crisis.

With five million people unemployed and warnings of a fresh recession looming, Rajoy gave the first details of how he plans to create jobs and reassure investors that he can stabilise its finances.

Only pensions will escape the knife, he said in a speech to parliament ahead of his investiture.

"We will have to reduce by 16.5 billion euros the shortfall between revenues and spending for the whole public administration," he told parliament in an investiture speech.

"This is our commitment and we are going to achieve it," he added.

"I pledge to dedicate all the government's capacities and all the efforts of the nation to stem unemployment, stimmulate growth and speed up a return to job creation."

Since his landslide election victory on November 20, pressure has risen on Rajoy to announced strong steps to lower the budget deficit and reassure the financial markets.

Spending cuts started by outgoing premier Jose Luis Rodriguez Zapatero have already begun biting into healthcare and education services in some regions, prompting street protests.

"Improving the purchasing power of pensions... will be the only commitment to increase spending that you will hear from me today," Rajoy said on Monday, confirming his plan for sweeping cuts.

Markets have been anxious for months that crises in Greece and Italy, where concerns over high public debts have likewise toppled governments and pushed up borrowing costs, will spread to Spain and across the eurozone.

Ratings agencies this month named Spain among several eurozone countries facing a possible credit downgrade.

Rajoy had vowed to stick to Spain's targets to cut the deficit to 4.4 percent of gross domestic product in 2012 and 3.0 percent of GDP -- the EU limit -- in 2013.

He acknowledged on Monday that the country may miss its deficit target of 6.0 percent of GDP this year.

"Let's hope not but this figure may be surpassed. We will know when the time comes," he said.

His speech to the lower house of parliament was to be followed by a two-day debate and then a vote by parliament -- in which his Popular Party holds an absolute majority -- to swear him in as prime minister.

His new government will take office on Thursday.

Rajoy, 56, won power on November 20 on his third attempt, as voters suffering economic hardship and a 21.5-percent unemployment rate turfed out the governing Socialists.

Spain has already imposed spending cuts in its efforts to trim the country's deficit, which is a big worry for the financial markets that lend it money.

It has spent 17.5 billion euros restructing its banking sector, which was brought low by the bursting of a real estate bubble in 2008. Rajoy promised to clean the sector up further.

"A second wave of restructuring is inevitable: more mergers, more capital requirements, a change of mdel and a change of the system of regulation," he said.

© 2011 AFP

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