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No end in sight to the pain in Spain
26 May 2010 @ 15:29

Spanish civil servants, like their counterparts in Britain, will feel the pain of spending restrictions as Madrid embarks upon a savings programme. But the similarities quickly end when considering the problems faced by the Prime Minister, José Luis Zapatero.

Civil servants’ salaries will be cut by an average of 5 per cent in a bid to save €15.25 billion (£13 billion) over two years and to bring the annual deficit back in line with the EU limit of 3 per cent of GDP by 2013. The deficit last year was 11.2 per cent of GDP.

The Government will also ban powerful local authorities, which account for a big part of public spending, from obtaining long-term credit or from funding investments until next year.

The regional authority debt last year was €34.6 billion — or 3.3 per cent of GDP. Eight out of Spain’s 52 provincial capitals owe on average more than €1,000 per person, a debt caused in part by falling revenues from property sales after the collapse of the housing markert.

The latest austerity measures come on top of a €50 billion package announced in January, and are straining industrial relations that were already fraught.

Unemployment stands at 20 per cent, the second highest in the eurozone, and Spain has lost jobs at the fastest rate in the European Union. Public sector workers are due to strike on June 8 in protest at government cutbacks and the General Workers Union and the Workers’ Commission have threatened a general strike.

Many analysts believe, though, that this would attract little support. Most union workers are in secure employment and temporary workers are more concerned about keeping their jobs than hitting the streets. In this respect Spain differs from Greece, where civil unrest has led to riots on the streets.

Spain’s banking sector has largely weathered the financial crisis thanks to strict financial regulations that forced banks to set aside provisions during the economic boom years.

There have been victims, though. Many small savings banks invested heavily in the building boom and have been unable to recover the cash from ailing developers, many of whom face bankruptcy.

Bank of Spain bailed out the Andalucian savings bank CajaSur over the weekend — after merger talks with Unicaja broke down — the second time it was forced to intervene after taking control of Caja Castilla La Mancha in March last year. In addition four savings banks are to merge – CAM, CajaSur, Cantabria, and Extremadura, according to a report today in Expansion, a financial daily.

Source: The Times



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