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Saturday 15th of May 2010
May 12, 2010    

Spain outlines austerity measures

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by Kay Murchie

Spanish Prime Minister, Jose Luis Rodriguez Zapatero, has today unveiled tough measures to deal with the country’s deficit, which is currently 11% of GDP.

Spain plans to reduce the deficit by 4.7% by the end of next year and endeavours to achieve this by cutting pensions and civil service salaries.

Speaking in parliament, the PM said: “We aim to cut civil service wages by an average of 5% in 2010 and freeze them in 2011.

According to Mr Zapatero, the measures will save more than €15 billion (£12.5 billion) over the next two years.

Meanwhile, the Government said it “will eliminate the €2,500 birth grant from January 1 2011” and “suspend index-linking pensions in 2011, excluding the minimum pensions.“

However, there are fears over tough austerity measures after they were implemented in Greece, which resulted in workers staging strikes across the country and led to three deaths in Athens last week after protesters set fire to a bank.

Meanwhile, last week it emerged that the Spanish economy had finally exited recession after experiencing growth of just 0.1% in the first quarter of 2010, ending a run of seven consecutive quarters of contraction.

There will also undoubtedly be fears over the recovery since the latest figures show unemployment tipped over the 20% mark – one of the highest rates of unemployment within the 16-member euro zone.

Spain’s jobless rate is double the 10% for the euro zone as a whole with the total number of jobless in the country at 4.61 million.

The economy has been hit by a severe slump within its key construction industry, which has led to a significant amount of job losses.

Standard & Poor’s (S&P) recently downgraded Spain’s credit rating by one notch to AA from AA+ over fears for the country’s economic outlook.

The Spanish economy, which is the euro zone’s fourth largest, contracted by 3.6% in 2009.

According to the European Commission, the economy will contract by 0.4% this year.

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