Spain orders pay cut, wage freeze for public workers

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Spain's socialist government on Wednesday ordered a five percent pay cut for public workers as it ordered tough austerity measures in a bid to slash the national debt.

Prime Minister Jose Luis Rodriguez Zapatero said the wage cut would be an average of five percent and start in June. He added that wages would remain frozen in 2011. Pensions except for the poorest will also be frozen in 2011, he said.

Spain's credit rating was cut by Standard and Poor's last month and it has been named along with Portugal as possible new weak links in the euro zone as Greece battles its debt crisis.

Spain has the eurozone's third-largest deficit after Ireland and Greece.

The pay cut announcement came as Spain became the last of Europe's big economies to emerge from recession, with the government announcing fragile growth of 0.1 percent in the first quarter.

"The government has decided to reduce the wages of public sector personnel by an average of five percent from June 2010 and to freeze wages through 2011", Zapatero told parliament.

"It is not easy for the government to approve" these measures, he said, adding that belt-tightening would have "an obvious social impact" in a country struggling with 20 percent unemployment.

The prime minister appeared before lawmakers to detail additional belt-tightening steps called for the reduce Spain's deficit which ballooned to 11.2 percent of GDP in 2009.

In January, Spain introduced a 50-billion euroes austerity package designed to keep the deficit to three percent of GDP by 2013, but moved to introduce additional measures worth 15 billion euros over two years following speculative attacks on the euro last week.

The new measures included scrapping a 2,500 euros payout to parents for the birth of children, a key part of Zapatero's social platform to boost Spain's lagging birth rate.

The government's National Statistics Office confirmed that Spain had become Europe's last major economy to emerge from recession with 0.1 percent growth in the first quarter compared to the preceding quarter.

Spain, Europe's fifth largest economy, went into recession in the second quarter of 2008 as the global financial meltdown compounded a crisis in the Spanish property market, which had been a major driver for growth in the preceding years.

The economy continued to contract until the fourth quarter of 2009 when it shrank 0.1 percent, according to the statistics office.

Year on year, the economy shrank 1.3 percent from the first quarter of 2009, it added.

The socialist government is targetting a 0.3 percent reduction of economic growth for all of 2010 after a 3.6 percent contraction last year.

© 2010 AFP

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