Britain announces spending cuts, joined by Italy and Spain

Britain moved Monday to cut “wasteful” spending in a bid to placate markets very nervous about the sustainability of massive public deficits, with Italy and Spain also announcing new measures.

In London, the new coalition government unveiled details of some 6.2 billion pounds (7.2 billion euros or 8.9 billion dollars) in cuts as it sought to begin chipping away at a record public deficit.

Italy’s government said it would review Tuesday a two-year package of budget cuts and revenue-boosting measures worth 24 billion euros, or four billion more than planned just one month ago.

Spain’s government, which has already announced austerity measures worth 65 billion euros, moved to bar local authorities from obtaining long-term credit for investment projects to further reduce its public deficit.

The moves follow drastic austerity measures in Greece and Portugal aimed at stemming a loss of market confidence in indebted European economies whose deficits soared during the global slump.

Despite the fragile economic recovery in Britain, the new Conservative-Liberal Democrat government has moved quickly to begin trimming spending in the face of markets spooked by European debt levels in the wake of the Greek debt crisis.

“In the space of just one week we have found and agreed to cut 6.25 billion pounds of wasteful spending across the public sector,” new finance minister George Osborne announced.

Britain’s finances have been ravaged by a record-length recession as well as by enormously expensive banking sector bailouts.

Official data last week showed the public deficit had hit 156.1 billion pounds in 2009/2010, or 11.1 percent of gross domestic product (GDP).

The government also plans to present an emergency budget on June 22 to address the dire state of public finances.

“My job is to make sure that this country can live within its means because we have inherited the largest budget deficit in Europe as an incoming government,” Chancellor of the Exchequer Osborne told the BBC.

Italy also said it would move to begin balancing its budget, with Prime Minister Silvio Berlusconi’s cabinet to meet Tuesday to review a package of measures.

Government spokesman Paolo Bonaiuti told Italian television the measures would generate some 24 billion euros (30 billion dollars) in savings through a combination of cuts and new revenue, which should cut the public deficit from 5.3 to 2.7 percent of GDP by 2012.

He said the thrust of the austerity measures was to limit the size and role of the state and spend public money better, adding that a freeze on the wages of top civil servants was a possibility.

As a eurozone member, Italy is supposed to keep its public deficit below three percent and total accumulated debt below 60 percent of GDP but last year that came to 115.8 percent.

Meanwhile in Madrid, the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero moved to bar local authorities from obtaining long-term credit until 2012 to further lower the public deficit.

“The local authorities and those that depend on them … cannot obtain long-term public or private credit, in any form, to fund their investments,” the bill said.

The measure is part of a two-year 15-billion-euro austerity plan that includes a freeze on state pensions and an average five percent cut this year to civil servant salaries.

The measures are on top of a 50-billion-euro austerity package announced in January designed to slash the public deficit to the eurozone limit of three percent of gross domestic product by 2013 from 11.2 percent last year.

The European Union together with the IMF were forced to cobble together a 110-billion-euro rescue package for Greece at the beginning of this month to help it avert bankruptcy after investors, spooked by its yawning deficits, demanded considerably higher interest rates on fresh funding.

When that failed to calm investors, who pushed the euro lower over fears of the sustainability of spending by some eurozone members, the EU and IMF announced a staggering 750-billion-euro rescue fund for euro countries.