Brussels, 03/01/2012 (Agence Europe) - The new government in Spain headed by Mariano Rajoy announced new emergency austerity measures at the end of December to enable the country to meet the budget targets it has set itself. Cuts of some €15 billion are planned to catch up with the targets following slower progress in cutting the public deficit last year. Spain's deficit currently hovers around 8% of GDP, whereas the target for 2011 was 6%. The new government has pledged to continue with the commitment to reduce the country's deficit to 4.4% of GDP in 2012, and to below 3% in 2013. Structural measures to encourage economic growth are expected to be announced in the next few weeks.
The Spanish government will make further cuts in public spending, to the tune of €9 billion, with retiring civil servants not being replaced (apart from in healthcare, education and the armed forces, where there will be one new person taken on for every ten who retire). On top of a 5% cut in their pay in 2010, civil servants' pay will continue to be frozen in 2012 (as in 2011). The Christian-Democrat government is planning what the Spanish media say will be a record hike in taxes, with a special one-off additional income tax in 2012 and 2013.
A European Commission spokesperson said on Tuesday 3 January that the measures were balanced because they would cut spending while increasing the state's income and it was for Spain to decide how it wants to catch up on its budget correction targets in order to achieve a return to the SGP-required level in 2013. The spokesperson said that the Commission had already been informed that Spain's budget would be touching on 8% in 2011 and was pleased that the government would soon be unveiling structural reforms to introduce flexibility in the labour market and further consolidate the public purse.
Regretting the feeble deficit reduction in Spain, EU Commissioner for the Euro Olli Rehn said at the end of December that the newly announced measures showed the Spanish government's determination to meet its budget commitments and that the measures would reassure the markets. He said that the next batch of austerity measures were crucial for restoring the credibility of the Spanish economy and set growth back on a sustainable trajectory. The Commission expects economic growth in Spain to be around 0.7% of GDP in 2012, the public debt to decrease from 69.6% to 73.8% of GDP and unemployment to remain at around 20%. (MB/transl.fl)