Spain prepares to slash wages and cut its deficit

City A.M. Reporter
SPAIN will cut wages of state employees and slash investment spending, sparking union anger at the government’s toughest moves yet to rein in a budget deficit some feared could ignite a bigger version of the Greek crisis.

Prime minister Jose Luis Rodriguez Zapatero’s fresh austerity measures came hours after US President Barack Obama pressed him to be “resolute” in efforts to implement economic reforms, and after conversations with German chancellor Angela Merkel and French president Nicolas Sarkozy.

“We need to make a singular, exceptional and extraordinary effort to cut our public deficit and we must do so now that the economy is beginning to recover,” Zapatero said as he detailed the cuts totalling €15bn (£12.7bn) in 2010 and 2011.

Civil service salaries will be cut by five per cent in 2010 and frozen in 2011, and more than €6bn will be cut from public investment, said Zapatero, who has been widely criticised for being slow to take decisive action against the crisis.

News of the austerity plan, which follows agreement of a $1 trillion (£645bn) fund to prop up weaker Eurozone states, cut the yield on Spanish 10-year Treasury bonds to around 3.97 per cent from around 4.02 per cent.

The Socialist government had until now indicated it would not cut wages.