EU asks Spain to cut spending by 1.75% in 2011

Today the European Commission has approved the austerity measures put forward by the Spanish government in order to reduce the budget deficit. However, it has also asked the government to make plans for spending cuts equivalent to 1.75% of GDP in its plans for 2011 in order to reduce the budget deficit from 11.2% of GDP in 2009 to 6% by 2011.

The EU, which has just published a detailed evaluation of the austerity measures put forward by the Spanish government, has concluded that the new objectives to reduce the deficit are ‘suitably ambitious and imply a substantial economic consolidation’.

Nevertheless, the EU has also asked Spain to specify measures to reduce spending by a further 1.75% of its GDP in order to reach new objectives and states that this evaluation should be taken into account when planning next year’s budget.

The European Commission has also asked Portugal to undertake similar measures to Spain and to set out its plans to reduce spending by 1.

5% of its GDP in next year’s budget.

Last week the Vice-President and Minister for the Economy, Elena Salgado, promised her European counterparts that if it was necessary Spain was prepared to make more efforts next year in order to reach the objective of reducing the budget deficit to 6%. She also said that further cuts in spending would be necessary in 2012 and 2013. Nevertheless she also said that she was convinced that the measures already announced would be sufficient.

The austerity measures announced by the Spanish government include plans to reduce the budget deficit by an extra 0.5% this year which is equivalent to 5000 euros and by 1% in 2011 (10,000 euros). They include plans to cut public sector pay by 5% and the freezing of pensions as well as getting rid of the one off payment of 2,500 euros for newborn babies.

The efforts to reduce the budget deficit in Spain were required by the European Commission after EU countries came up with a 750,000 million euro rescue package aimed at helping the Greek economy. It was also an attempt to stop the crisis reaching Spain and Portugal. Salgado denied rumours published by the German press this week that Spain was planning on asking for help from this fund. The European Commission has also denied that it is preparing a rescue package for Spain and accused Germany of starting false rumours.

In addition, the European Commission has asked the Spanish government to complete the process of reforms to labour laws and system of pensions.