Spanish Govt Unveils Tough Austerity Budget

Spain's government has unveiled a 27 billion euro (£22.5 bn) deficit-reduction budget, including spending cuts and tax hikes on large companies.

Deputy prime minister Soraya Saenz de Santamaria said the 2012 draft budget calls for cutting central government spending by an average of nearly 17% and freezing civil servant wages.

Overall government spending will be cut by 17 billion euros.
Finance minister Cristobal Montoro said it was the most austere budget proposal since Spain regained democracy in 1977.

"We are taking extraordinary measures because the situation is extraordinary," Mr Montoro told a news conference after a Cabinet meeting at which the budget plan was passed.

The blueprint will go to Parliament on Tuesday and is expected to be formally passed in June.

The government, which is not yet 100 days old, is under pressure to reduce its budget deficit, which last year ballooned to 8.51% of all the goods and services produced by Spain.

The European Union says this must be reduced to 5.3% this year and 3% in 2013 but economists warn that growth in Spain is so sluggish and debt so high, it will be a tough deadline to meet.

There is good reason for nervousness in the eurozone. Unlike Greece and Portugal, Spain is deemed too big to bail and British banks are also heavily exposed to Spanish debt.

With unemployment running at 50% among young Spaniards and, as a member of the eurozone, no monetary levers to pull, the government says it has little choice but to wield the axe once again.

Moves to boost the economy have already led to national protest in scenes reminiscent of the anti-austerity demonstrations in Greece.

On Thursday, unions called a general strike in protest at labour reforms which make it cheaper and easier for companies to lay people off and slash wages.

The government claims they are needed to tackle the 22.85% jobless rate, which is predicted to rise to almost 24.3% this year.

Thousands heeded the call to join a general strike, which left hundreds of flights grounded, train services cancelled and factories idling in all 17 regions of the country.

Violence erupted in Barcelona, where hooded protesters smashed bank and shop windows with hammers and rocks and set fire to rubbish bins.

In Valencia, protesters set fire to mattresses and a Molotov cocktail was hurled at a police car in the eastern city of Murcia.

Authorities arrested 176 protesters across Spain and said 104 people were injured in clashes, including 58 police officers.

Unions also claimed car manufacturers Renault (Other OTC: RNSDF.PK - news) , SEAT, Volkswagen (Xetra: 766400 - news) and Ford (NYSE: F - news) were forced to stop production.

In Madrid, a group of around 500 whistleblowing picketers marched and blocked traffic for about an hour as police and police in riot gear watched from the sidelines.

One protester, Angel Andrino, 31, said he was laid off a day after the labour reforms were approved in a decree last month.

"We are going through a really hard time, suffering," he said. "The rights that our parents and grandparents fought for are being wiped away without the public being consulted."

Following the protests, the unions claimed victory and demanded a "gesture" from the government to scale back its plans, warning they could cause more unrest from May 1.

But the administration insisted it would not change tack. Labour minister Fatima Banez said: "There is no stopping on the path to reform."