Business

Spanish lawmakers barely approve austerity plan

admin Contributor

MADRID (AP) — Parliament approved emergency measures to cut Spain’s soaring deficit by only one vote Thursday, saving the Socialist government from an embarrassing defeat but revealing the depth of resistance to austerity plans aimed at resolving Europe’s debt crisis.

The package, which includes a cut in civil servants’ salaries, was approved 169-168 with 13 abstentions in the 350-seat lower chamber.

A defeat would have been a serious blow for Prime Minister Jose Luis Rodriguez Zapatero and his government, which is trying to show it can handle Spain’s chapter of the European sovereign debt crisis. Opposition lawmakers still urged that early elections be held.

The austerity measures — which aim to cut spending by euro15 billion ($18.4 billion) this year and next — have been welcomed by the European Union and the International Monetary Fund but much criticized at home as a major U-turn on social policies by the Socialists.

Europe’s top job creator only two years ago, Spain now has the region’s highest unemployment rate at just over 20 percent and is the slowest of the major economies to emerge from the global recession.

Prior to the vote, Finance Minister Elena Salgado pleaded with lawmakers, saying the measures were “painful but inevitable” in order to reduce the deficit.

Spain is coming under increasing pressure to introduce labor, fiscal and banking reforms to cut its large deficit from 11.2 percent of gross domestic product in 2009 to within the EU limit of 3 percent by 2013.

The austerity package is also designed to halt market speculation that the debt crisis affecting Greece might spread to countries like Spain or Portugal. Fearing possible defaults, bond markets have begun demanding higher interest rates from those troubled governments, with Greece shut out of the borrowing market and forced to take a euro110 billion ($134 billion) bailout from the EU and the IMF. The 16 nations who use the common euro currency have also agreed on a $1 trillion loan backstop for other troubled eurozone countries if they need it.

Countries across Europe — including Italy, Ireland, Portugal, Greece and non-euro member Britain — have announced spending cuts and tax increases to maintain public confidence in their ability to manage their finances. But the measures, many aimed at public employees, have drawn protests and criticism from union leaders, particularly in Greece.

Some economists also fear the austerity cutbacks to appease the bond market may help kill off Europe’s hesitant economic recovery by withdrawing government stimulus efforts too soon.

Germany, which has pushed other eurozone members hard into reining in spending, welcomed the Spanish vote.

“We can only achieve long-term stability of the euro if every member state of the European currency union makes its contribution through structural measures,” said German Economy Minister Rainer Bruederle. “Effective consolidation of budgets is a crucial means of doing this.”

He added that “Germany will not exempt itself” from budget cuts.

The Socialists needed only a simple majority to get the measures approved and would have failed if not for the abstentions.

The package was slammed by all opposition groups, with Mariano Rajoy, head of the leading conservative opposition Popular Party, calling the measures “improvised, insufficient and unjust.”

“My parliamentary group is not going to help you, the main problem of Spanish economy, to continue” as prime minister, he told Zapatero before the vote.

Josep Antoni Duran y Lleida, who leads the Convergence and Union coalition, said he abstained and saved the government only out of a sense of duty to Spain.

“I don’t want Spain to be helped out like Greece,” Duran y Lleida said. But he added that Zapatero’s time was running out and joined the Popular Party in calling for early elections before those scheduled in 2012.

The emergency measures cut public sector wages an average of 5 percent beginning in June, froze the wages and then froze most retirement pensions in 2011.

On Wednesday, Zapatero said Spain would also introduce a new tax for the country’s highest-income earners, trying to stave off criticism that only low-income workers were being targeted by the cutbacks.

Earlier this week, lawmakers in both chambers cut their base salaries by 10 percent while municipal governments announced pay cuts up to 15 percent for mayors and other local officials.

Spain is now looking to the country’s two main labor unions and employers group to agree on badly needed labor reforms before the end of the month. Otherwise the Socialist government has hinted it will impose them itself. The measures aim to spur employment by making it cheaper for companies to fire people.

Those talks and Friday’s weekly cabinet meeting were cited by officials as why Zapatero unexpectedly canceled a trip to Brazil later Thursday.