Austerity Plan for Spain

Spanish government has recently approved an austerity plan aimed at reducing the country's large fiscal deficit and easing concerns that Spain could follow Greece into a debt crisis. The tough cost cutting measures are expected to save the Spanish government 15 billion euros in 2010 and 2011.

The plan is expected to reduce Spain's deficit from its current level of more than 11 percent of gross domestic product to 6% of GDP by 2011 and to 3% by 2013. The plan calls for

• slashing salaries of Cabinet ministers and other senior officials by 15 percent.
• an average five-percent pay cut for public sector workers from June,
• and a pay freeze from 2011.

Unions in Spain have reacted to the austerity plan and have called a public sector strike today the 8th June to protest against government's tough cost cutting measures.
The latest austerity plan is over and above a 50-billion-euro austerity package announced in January to reduce Spain's budget deficit from the 11.2% of GDP posted last year to the eurozone limit of 3% by 2013.
The approval of the latest set of austerity measures by the Spanish government comes after official data indicated that the country has managed to move out of recession in the first quarter of this year. Data released revealed that the country had posted a growth rate of 0.1% in the first quarter, mainly due to a rise in exports and household spending.
Though Spain managed to move out of recession in the first quarter, the country's unemployment rate remains at 20%, which is almost twice the eurozone average.
Could recession get worse in Spain? I think so. For an economy that depends so much on the tourist trade, which in turn depends on three factors:

• people having disposable income
• flights being available
• the weather

The first two are under the hammer as most of Europe is in recession and the Icelandic Volcano is causing massive disruption when it hiccups. The third is probably the only certainty along with the situation getting worse in Spain.