Spain Targets €50Bn Spending Cuts
February 4th, 2010
Spain’s Cabinet will discuss spending cuts of as much as 50 billion euros ($70 billion) by 2013 as it aims to slash the budget deficit by two-thirds to meet a European Union target.
The government will discuss the so-called austerity plan that aims to cut current spending in the central and regional administrations, said an official at the prime minister’s office in Madrid today who declined to be named in line with policy.
Spain, mired in recession with the highest jobless rate in the euro region, has come under scrutiny amid concerns that smaller European countries like Greece may struggle to finance their growing debt. Even as Spain’s public-debt burden is about half the size of Greece’s, the risk premium on Spanish bonds has surged to the highest in nine months.
Spain’s public-sector deficit probably amounted to 11.2 percent of gross domestic product last year, according to forecasts from the European Commission, which has set a 2013 deadline to cut the shortfall to the 3 percent EU limit. The country’s debt burden is set to double from before the crisis to 74 percent in 2011.
Spain’s economy has been contracting since the second quarter of 2008, pushing the unemployment rate to 19.4 percent as the collapse of a construction boom destroyed more than a million jobs. In response, the government created one of the biggest stimulus programs in Europe, putting builders back to work, and extended jobless pay for the long-term unemployed.
To shore up state finances and convince investors about its deficit-cutting plans, the government raised taxes on income from savings in 2010 and will increase value-added tax in July.
Bank of Spain Governor Miguel Angel Fernandez Ordonez said more needs to be done as reining in the deficit is the most “urgent” priority, along with overhauling labor rules.
“It will be necessary to implement, in each component of spending, deep structural reforms,” he said in a speech in Vigo, Spain.
Story from Bloomberg
