José Luis Rodríguez Zapatero, Spain’s Socialist prime minister, on Wednesday announced a 5 per cent cut in civil service pay as part of an accelerated plan to cut the country’s budget deficit.
Mr Zapatero had come under intense pressure from Spain’s European partners, the International Monetary Fund and the US to make faster cuts to bolster the credibility of a €750bn programme to rescue the eurozone that was agreed in Brussels at the weekend.
On Tuesday, Barack Obama, US president, called Mr Zapatero and “discussed the importance of Spain taking resolute action as part of Europe’s effort to strengthen its economy and build market confidence”, the White House said.
Speaking in parliament, Mr Zapatero explained the measures Spain would take to reduce the deficit by an extra 0.5 per cent of gross domestic product this year and 1 per cent of GDP in 2011, a total of €15bn ($19bn, £13bn).
The measures should bring the deficit down from 11.2 per cent of GDP in 2009 to just over 6 per cent of GDP in 2011.
His decision to cut civil service salaries by 5 per cent from June, and then freeze them next year, underlined the seriousness of the challenge facing Spain.
Analysts had previously said that such a move would be almost impossible politically for Mr Zapatero and his Socialist party. Ministers will take a 15 per cent pay cut.
Other measures include a €6bn cut in public sector investment, €1.2bn in savings by regional and local governments, a freeze on pension payments, abolition of a €2,500 childbirth allowance from next year, a €600m reduction in foreign aid, and savings on the costs of pharmaceuticals in the public health system.
“The situation is difficult and it would be nonsense to hide it,” Mr Zapatero said. “It is essential to achieve our commitment to reduce the deficit, and to create confidence in the Spanish economy.”
The National Statistics Institute confirmed on Wednesday that the Spanish economy had finally crawled out of a recession lasting nearly two years, with 0.1 per cent growth in the first quarter of the year compared with the previous quarter.
Spain’s Ibex 35 equities index rose 2.4 per cent in early trading.
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