Spain Approves $18.5 Billion in Cuts

May 27, 2010 Updated: May 27, 2010

Spanish Parliament narrowly passed plans for a severe budget by just one vote on Thursday. The cuts, worth $18.5 billion, are aimed at reducing the budget deficit of 11.2 percent in an attempt to restore confidence in the eurozone. Euro countries have to adhere to a deficit limit of 3 percent of GDP.

President José Luis Rodríguez Zapatero’s socialist government won the vote by a margin of 169 to 168, with 13 abstentions. Zapatero does not enjoy a majority in Parliament so the abstentions were key to passing the austerity package.

The measures include lowering civil servant salaries by 5 percent starting next month, lowering salaries for ministers by 15 percent, freezing pensions, lowering investments, and canceling the 2,500 euros (US$3,085) premium for having a baby.

The opposition was not pleased with the austerity measures drawn up by economy and finance minister, Elena Salgado. They were called “improvised, insufficient, and unjust” by Mariano Rajoy, leader of the main conservative opposition party, according to media reports.

“Yes, let’s cut the deficit, but not like this,” said Rajoy.

Zapatero was blamed for getting into the crisis in the first place by Joseph Duran i Lleida, leader of the Catalan nationalist party, CiU. CiU’s ten members accounted for most of the 13 abstentions.

Spanish public-sector employee unions are preparing to strike against the measures on June 8.

Italian government approved $30.4 billion budget cuts on Tuesday and although the battle isn't over yet, financial markets are reacting positive to the efforts.