Spain to Cancel €6.4 Billion of Projects to Slash Deficit
July 27th, 2010
The Spanish government announced on Thursday it would postpone or cancel 231 public works projects as part of an austerity drive aimed at slashing a budget deficit equivalent to 11.2 per cent of gross domestic product.
José Blanco, the public works minister, said he had been forced to cut €6.4bn ($8.2bn, £5.4bn) of state-funded works over the next two years, equal to about 20 per cent of planned or awarded tenders.
This would mean delaying 199 contracts for up to four years and cancelling or restructuring 32 others. Worst hit by the austerity drive were road and rail developments in northern regions such as Catalonia, Aragon and Cantabria.
Spanish new construction and infrastructure companies, already bowed under the weight of boom-time debt and hit by the collapse of the residential housing market, have warned that the cuts could add more than 100,000 workers to the 4.2m already unemployed.
“The projects had already been awarded, so the companies had already taken on workers,” said Juan Lazcano, chairman of the National Construction Confederation. “These [job contracts] will have to be cancelled.”
Mr Blanco, however, told parliament he had no choice. “We are aware that this will have an important effect on infrastructure companies,” he said. “[However], the civil works sector must be restructured.”
Spain’s governing Socialists have been under pressure to rein in spending after watching a public sector surplus turn into one of the eurozone’s largest deficits in just two years.
Although expected, the cuts have been harshly criticised by lobbyists for a sector that grew accustomed to generous returns during a 15-year property, tourism and civil works boom, partly financed by European Union funds. Mr Blanco said on Thursday the government had invested €86bn in the past six years.
The good times ended when the Spanish housing bubble burst in 2007 and the global credit squeeze and ensuing recession starved companies and governments of infrastructure funds. Thousands of small and medium-sized property developers, construction companies and suppliers have disappeared , putting 1m workers on the dole.
UBS, in a report published this week, warned that even company-funded infrastructure projects were at risk because of Spanish banks’ reluctance to lend to a sector that is already over-leveraged.
Public sector budgetary restraints would also hit infrastructure groups that had diversified into street cleaning, waste management and similar services, according to the bank.
“Spanish infrastructure groups are highly exposed to environmental and urban services, where the major clients are municipal governments also facing tough budget restrictions,” UBS said.
Story from Financial Times
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