LyrArc Article Gist
Concerns that the austerity cuts announced by Spanish prime minister Zapatero may not address the deeper causes of the financial crisis in Europe- taking on too much debt, government spending and the imbalances in the global economy. And the concern on the other side that even these small cuts and eventual larger cuts can squeeze domestic demand in countries with severe recession, weaken the tax base, test social cohesion, and dampen the prospects for recovery. Zapatero announced a 5% pay cut for public sector employees this year and a freeze for next year, cancelling index-linked pension increases, and cancelling a baby bonus tax break of 2500 euros, cutting back regional spending budgets, and postponement of infrastructure projects, all adding up to $15 billion in savings. This is intended to reduce the budget deficit to 6% of GDP from 11.2% in 2009. With Spain's unemployment at 20%, and the construction sector stalled, pain will be felt. Spain's large informal economy tied to tourism helps in this situation. Trade union Comisiones Obreras gave a muted response about a general strike saying that "it is the last thing this country needs at a time like this," after meetings with Zapatero.