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Spain to slash spending in return for EU aid

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Spain to slash spending in return for EU aid


An emergency EU aid package for weak euro zone members has come at a price.

In return, Spanish Economy Minister Elena Salgado was put under pressure by European colleagues to slash spending in her recession-ravaged country. And, amid fears that Spain could enter into a debt spiral like Greece, she has pledged action.

Madrid had already promised to reduce its budget deficit to 3 per cent of GDP by 2013 from just over 11 per cent last year. That means making savings of 50 billion euros. Now, a further 1 and a half per cent of cuts are planned in the short-term, worth 15 billion euros.

Jose Luis Rodriguez Zapatero is about to provide details of the next budget measures to parliament.
Since Spain entered recession at the end of 2008, political opponents of the prime minister have been urging him to take radical measures.

A key demand is reforming the labour market to make it less expensive to hire and fire workers in an increasingly uncompetitive economy. Many experts believe such a move is inevitable. But the powerful Spanish trade unions bitterly oppose reform, saying workers’ rights should not be reduced.

Spain currently has the highest unemployment level in the euro zone, running at around 20 per cent.

Economic challenges have mounted as the country has still not rebounded from recession after its worst downturn in decades when a property boom went bust.

But central government is not the only factor when it comes to keeping public finances under control. Spain’s autonomous regions account for around half of the country’s spending. The extent of decentralisation is a Spanish peculiarity that does not go unnoticed by financial experts.

Paul Mielgo, an analyst with Spanish broadcaster Intereconomia, said: “Spain is made up of 17 autonomous communities, to which the State has given significant responsibilities when it comes to taxation. And these regions, these autonomous communities, are governed by different parties.”

So Zapatero’s Socialist government must reach agreement with regional leaders, whatever their political persuasion, if Spain is to ride out the storm rocking the euro zone.

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