Spain budget: Cuts risk downward spiral

  • Author, Gavin Hewitt
  • Role, Europe editor

The Spanish government said this was the most austere budget since Spain became a democracy in 1977.

And so it was.

Ministries will face cuts to their budgets of around 17%. That is higher than expected.

The aim is to make savings of 27bn euros ($36bn; 拢22.5bn) in 2012.

The salaries of public sector workers will be frozen and they will be expected to work longer hours for the same pay.

Electricity prices will go up by 7%.

But the government has been mindful of the country's high unemployment rate - currently running at 24%.

Unemployment benefits will be maintained and pensions will continue to rise.

VAT won't go up but taxes will for large companies.

A government minister said Spain needed to tighten up its finances to meet EU targets for reducing deficits without stifling economic growth and job creation.

That is the challenge.

Privately some in government accept these calculations involve a risk.

The economy is in recession and some predict it will shrink by around 2% this year - even before these savings are made.

The fear is that Spain could be tipped into a downward spiral.

It is also unclear how the public will react to more austerity. The unions held a general strike yesterday and are threatening further disruption.