Spain to cut civil servants salaries, trim other benefits in deficit-reduction plan

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Spain to slash salaries, investment to cut deficit

MADRID — Spain will cut civil servants’ salaries this year as part of a deficit-reduction plan to ease worries the country will slide into a debt crisis like that of Greece, the prime minister announced Wednesday.

Jose Luis Rodriguez Zapatero told Parliament the average 5 percent reduction starting in June is part of a cost-cutting plan, first announced Sunday, that also includes a suspension in automatic inflation-adjustments for retirement pensions, a drop in overseas aid, a €6 billion ($7.6 billion) reduction in government investment in 2010-11 and elimination next year of a €2,500 tax break for couples that have babies or adopt a child.

With these measures, Spain joins other debt-ridden European countries, like Portugal and Ireland, in implementing painful belt-tigthening to chip away at deficits that ballooned with the onset of the recession.

“We are going to ask everyone for a stronger effort. First, from Spanish society, but also from the government,” Zapatero said. The goal, he added, “is to contribute, with our financial stability, to the financial stability of the eurozone.”

Zapatero fleshed out the details of the plan announced Sunday for deeper spending cuts to reduce Spain’s deficit from 11.2 percent of GDP last year to 9.3 percent in 2010, and eventually to 3 percent in 2013. For this year and next, the plan calls for spending cuts totaling euro15 billion ($19 billion). The deeper cuts are designed to take an additional 1.5 points off the deficit by the end of 2011.

Zapatero said his own salary and those of other senior members of the government would be cut by 15 percent.

The reduction in civil servants’ pay marks an about face for a government which had insisted as it weathered the European debt crisis in recent weeks that such salaries would not be touched.

Spanish unions called the austerity measures harsh and said the government should consider cutting the deficit by raising revenue, not just reducing spending. One major labor federation, Workers Commmissions, said it does not rule out calling a general strike.

In Brussels, EU Economy Commissioner Olli Rehn said the measures “seem to go in the right direction” but that the EU will not make a full assessment until it has more details next week.

Spain has come under intense pressure recently to take strong measures to slash its big deficit, namely at the weekend emergency EU meeting in Brussels at which the bloc devised a euro750 billion rescue plan to prop up the euro and support debt-heavy governments.

Even President Barack Obama has intervened, urging Zapatero to take “resolute action.” The White House says Obama delivered the message to Zapatero in a phone call Tuesday.

Spain has run up a huge deficit because of heavy spending on unemployment benefits and stimulus measures as it struggled against recession that began in the third quarter of 2008. The economy crawled out of recession in the first quarter with tepid growth of 0.1 percent. But the government still foresees the economy contracting for the year. Spain is one of the last major economies to emerge from recession.

As recently as last week Zapatero resisted calls from the conservative opposition to take firmer action to cut spending, saying it would jeopardize economic recovery.

Opposition leader Mariano Rajoy said Wednesday he supported the spending cuts announced by Zapatero but accused him of rushing them through over three days to satisfy the European Union.

“It is sad that you reject measures just because it was me who offered them, then approve them the following Wednesday because Europe offers them,” Rajoy said.