Spain says on track to rein in deficit after credit downgrade

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Spain is on track to bring its public deficit within an EU limit by 2013, its finance minister said Wednesday after ratings agency Standard & Poor's cut the country's credit rating.

"We have a plan to reduce the deficit, we are putting it in place, we are meeting one by one all the timelines which we have set," Elena Salgado said during an interview with public television TVE.

"I believe the markets will evaluate the situation this way. When the situation in Greece is resolved, I believe things will return to their right place," she added.

The government announced a 50 billion euro (66.5 billion dollar) austerity package earlier this year as part of its drive to cut its deficit from 11.2 percent of gross domestic product in 2009 to a limit of 3.0 percent imposed on the 16 nations that use the euro single currency by 2013.

The plan includes cuts in government spending, a virtual freeze in the hiring of civil servants and some tax rises.

It has also proposed raising the legal retirement age from 65 to 67 and wants to cut the cost of firing workers as part of efforts to revive the economy and slash the unemployment rate, which is around 20 percent.

S&P lowered Spain's long-term sovereign credit rating to "AA" from "AA+" and said the outlook was negative.

"In our opinion, Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position," the agency said in a statement.

Spain, which has the eurozone's third-largest deficit after Ireland and Greece, was last cut by S&P in January 2009 when it was lowered one notch from AAA, the highest possible rating.

© 2010 AFP

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