Spanish parliament approves 2011 austerity budget

21st December 2010, Comments 0 comments

Spain's parliament approved Tuesday the Socialist government's 2011 austerity budget aimed at cutting the debt-strapped country's deficit and righting its strained public finances.

Prime Minister Jose Luis Rodriguez Zapatero's budget cuts 2011 expenditure by 7.9 percent to 122 billion euros (170 billion dollars).

It will reduce the public deficit from 11.1 percent of annual output last year to 6.0 percent in 2011 and to 3.0 percent, the European Union limit, by 2013.

The 2010 deficit is estimated at 9.3 percent of Gross Domestic Product.

Measures in the budget include a 16 percent cut in departmental spending and 7.9 percent cut in state-level spending, plus tax increases on incomes over 120,000 euros per year.

Finance Minister Elena Salgado told lawmakers that 2011 was shaping up to be "a difficult year" because of the austerity measures.

But ongoing structural reforms and fiscal consolidation were "the cornerstone of a return of growth in the medium term," she said.

Budget Minister Carlos Ocana said the government was due "to fulfil its deficit reduction objectives" for 2010.

The budget passed with 177 votes for and 171 against, reflecting the narrow margin for the government whose austerity measures have been very unpopular.

Zapatero only controls 169 seats, short of a majority, but gained the support of two small regional parties to win approval.

The financial markets may welcome the budget as removing uncertainty for next year, with eurozone member Spain having come under pressure recently in the fallout from the Greek and Irish debt crises.

Greece and Ireland have both needed EU-International Monetary Fund bailouts, with many speculating that Portugal and then Spain could be next in the firing line.

Spain's economy, however, ranks fourth in the eurozone and a rescue would be far bigger than anything seen to date in Europe -- the size of its economy is twice that of Greece, Ireland and Portugal combined.

Spain has faced higher borrowing costs since Ireland last month agreed to a bailout from the International Monetary Fund and the European Union similar to the one granted Greece in May.

Last week Moody's rating agency, which trimmed Spain's sovereign debt rating from top-notch Aaa to Aa1 in September, said it had put it on review for a further cut.

Earlier Tuesday, Moody's said it had downgraded its credit rating for two of Spain's 17 regional governments, Castille-La Manche and Murcia.

Salgado said Monday that the 17 regional governments had a combined public deficit during the first nine months of the year equivalent to 1.24 percent of GDP, a figure which is "perfectly compatible" with the year-end target for regional government debt of 2.4 percent.

Spain's 17 Spanish regions have considerable autonomy, with the right to issue bonds to finance their expenses.

They account for around one-third of general government expenditures -- and just over half of the nation's total number of civil servants.

European leaders have struggled to reassure markets about the stability of the euro and agreed at a Brussels summit last week to establish a permanent financial bailout mechanism from mid-2013 to come to the aid of troubled eurozone governments.

© 2010 AFP

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