Spain announces `extraordinary` €27bn budget cuts
Baku, March 31 (AZERTAC).Mariano Rajoy`s conservative government announced Spain`s most austere budget for more than three decades - the day after a million protesters took to Spanish streets. "We are taking extraordinary measures because the situation is extraordinary," the budget minister, Cristóbal Montoro, said before announcing €27bn (£22.5bn) in spending cuts and tax rises. Markets and fellow eurozone members increasingly fear that Spain - whose economy is twice the size of that of Greece, Ireland and Portugal put together - could be the biggest threat to their future. "Spain is going to stop being a problem, especially for the Spanish people, but also for the European Union," finance minister Luis de Guindos said as he prepared to explain the austerity measures to concerned eurozone ministers who were meeting in Copenhagen. It was unclear whether the complex €27bn adjustment, which included €15bn in tax rises and spending cuts announced in December, would convince the markets. "This is as austere as it gets. It`s a tightening of fiscal policy until the pips squeak," said Nicholas Spiro at Spiro Sovereign Strategy. "There can be no doubting the government`s willingness to curb Spain`s excessive budget deficits." Pressure eased slightly on Spain`s bond yields on Friday, suggesting the initial reaction was positive, but some analysts said they needed to study the measures more closely. Montoro avoided raising headline corporate taxes and sales taxes in an attempt to limit damage to consumer spending in a country already tumbling into recession. The government estimates the economy will shrink by 1.7% this year. He insisted that, with unemployment at 23% and climbing, he had tried to avoid hurting the economy`s chances of recovery. But economists have warned the deficit-cutting measures demanded of Spain this year will take two percentage points of GDP off growth, pushing the country into the second part of a double-dip recession. The adjustment, which amounts to some €570 per Spaniard, mostly came from widely distributed spending cuts, with ministries cutting by an average 17% and a sharp fall in infrastructure investment. Civil servants, whose salaries were cut by 5% in 2010, were among the biggest losers: their wages were frozen again this year.
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