Spain has unveiled its most austere budget in democratic history today in the wake of massive protests.
The government's budget calls for cuts of 27 billion euros ($35 billion). It cuts central government spending by almost 17% and freezes civil servant wages while requiring them to work an additional 10 hours per month. Another cut hitting households is an 7%-increase in domestic electric prices and 5%-increase on gas.
The austerity has been greatly resisted by the population. Yesterday Spaniards flooded the streets in a general strike to oppose the government's austerity push and labor reforms, which many believe would exacerbate the unemployment levels already the highest in the EU at 23.3%. Spaniards under 25 face an unemployment rate of 49.9%
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The Cabinet on Friday approved 27 billion euros of savings for the rest of the year, the biggest spending adjustment seen in Spain’s modern democracy.
Speaking after a meeting of the Cabinet, Finance Minister Cristóbal Montoro described the country’s finances as “critical,” and reiterated that the government’s goal is to bring down the deficit by the end of the year from the current 8.51 percent of GDP to 5.3 percent, in line with Brussels’ demands. [...]
The government plans drastic spending cuts in all the ministries with an average reduction of 16.9 percent of spending – two percentage points higher than the figure Prime Minister Mariano Rajoy announced on Tuesday. The biggest cuts will be made in overseas aid through international cooperation and development programs, with 594 million euros of cuts.
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The government, which swept to power in November with the largest Parliamentary majority in 30 years, has already passed labour market and banking sector reforms to improve competitiveness and reduce wage costs.
Brussels has agreed to let Prime Minister Mariano Rajoy aim for a 2012 deficit equal to 5.3 per cent of gross domestic product, a less demanding goal than the original 4.4 per cent but a substantial improvement on last year's 8.5 per cent. [...]
'This is as austere as it gets. It's a tightening of fiscal policy until the pips squeak. There can be no doubting the government's willingness to curb Spain's excessive budget deficits,' said Nicholas Spiro at Spiro Sovereign Strategy.