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Spain Cuts Ministries In Largest Reshuffle Since 2004
20 October 2010 @ 15:06

MADRID (Dow Jones)--In the largest government reshuffle in six years, Spain's Prime Minister Jose Luis Rodriguez Zapatero said Wednesday he will eliminate two ministries and replace his deputy prime minister, in a bid to gain new political momentum and adhere to stricter austerity measures requested by the European Union.

The reshuffle comes at a time when the prime minister's popularity has crumbled with unemployment above 20% and the economy mired in very low growth levels.

Analysts say the removal of the Equality and Housing ministries is unlikely to lead to major savings for a government struggling to bring down its budget deficit, which may be at around 9% of gross domestic product this year.

"This is a step in the right direction," said Maria Jesus Fernandez, economist at the think tank Funcas. "But most of the budget in the two ministries goes to pay the civil servants' salaries. And these civil servants will simply be moved to other ministries."

The two ministries have long been the target of criticism. They were created by Zapatero in 2004, as part of his renewed focus on social spending, but their functions have been unclear and often overlapped with those of local authorities. The most visible task of the Housing ministry has been the publication of housing price estimates which many analysts consider less trustworthy than those from the private sector.

A fast reduction of Spain's budget deficit is a key concern in global markets, as the government is still anticipating a 6% deficit next year. Spain's $1.5 trillion economy is much bigger than those of Ireland, Portugal and Greece, and a fiscal crisis here would likely have serious consequences for the euro zone as a whole.

The country's borrowing costs hit their highest levels since the creation of the euro in June, and remain well above last year's levels.

Zapatero said interior Minister Alfredo Perez Rubalcaba will replace deputy Prime Minister Maria Teresa Fernandez de la Vega, while also keeping his current portfolio. In another key move, Valeriano Gomez will take over the all-important Labor ministry from Celestino Corbacho, who was already slated to leave the cabinet.

That will leave Rubalcaba, a veteran of the Felipe Gonzalez Socialist governments of the 1990s and a top negotiator in on-and-off peace talks with terrorist group ETA, as the clear "number two" in the cabinet, right after parliament approved next year's budget--a sign, observers say, that Zapatero will likely survive challenges to his leadership and hold on to his position at least until the general elections that must be held by 2012.

Several austerity measures, reforms of the labor market and mutually-owned savings banks, have helped to allay investors' fears, but they have also undermined Zapatero's political capital, making it more difficult to legislate.

Foreign affairs minister Miguel Angel Moratinos, a former European Union official who like De la Vega has been in the post since the Socialist Party won the 2004 general elections, will be replaced by Trinidad Jimenez, Zapatero said. Moratinos is widely considered one of the key architects in relatively friendly Spanish policies towards the Hugo Chavez regime in Venezuela, as well as a staunch supporter of an independent Palestinian state.

In less relevant changes, Leire Pajin will take over the Health Affairs ministry, Ramon Jauregui moves to the PM office ministry and Rosa Aguilar goes to the Environment ministry.

Source: Wall Street Journal

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