Page last updated at 04:38 GMT, Thursday, 13 May 2010 05:38 UK

Spain PM gets serious on debt... finally

By Sarah Rainsford
BBC News, Madrid

Despite repeatedly promising spending cuts, Spanish Prime Minister Jose Luis Rodriguez Zapatero has always shied away from drastic reforms. This week, everything changed.

Jose Luis Rodriguez Zapatero
Jose Luis Rodriguez Zapatero is no fan of unpopular policy announcements

The cuts announced on Wednesday are deep. Some are also deeply controversial - including a 5% cut in public sector pay, starting in June. Salaries will then be frozen for 2011.

There are big cuts in public investment too, and in development aid. Some pensions will be frozen. Smaller savings include an end to the 2,500-euro (£2,150; $3,200) cash payout for new mothers, known as "baby cheques".

In all, Mr Zapatero says the measures amount to the additional 5bn euros in savings this year, and 10bn euros next year, promised at a meeting of EU finance ministers last Monday.

The prime minister left the lectern in parliament to loud applause from his party. But there was a very different response to his plan on the streets of Madrid.

"We have lots of useless ministries and management jobs that could be cut," says Maite. Heavily pregnant, she is worried about the loss of the baby cheque.

"But they always cut the same things: public sector pay, pension. The same people always end up paying."

Postal worker Azucena had been out collecting signatures to protest against funding cuts to the postal service when she learned that her own wages would be falling.

"We only earn 1,000 euros a month, so this cut will affect us a lot," she says.

"We will really have to reduce our spending now. They put taxes up too, so it's a serious loss."

Socialist split?

Spain's trade unions have expressed anger at the move, saying the government had promised not to touch wages in its bid to rein in spending.

5% average pay cut for public workers in 2010
Payout scrapped to parents for birth of children
Automatic inflation-adjustments for pensions suspended
Funding to regions cut by 1.2bn euros

One union leader called for a "massive response" on the streets; another said this would cause a break in relations with the Socialist government.

But the long recession has left Spain with a swollen budget deficit - more than 11% of GDP - and a long way from the EU's 3% maximum.

Fearing a repeat of the debt crisis that engulfed Greece, EU leaders agreed an unprecedented rescue package for weak economies like Spain on Monday.

In return, they clearly demanded firm action on public spending to remove the risk of default.

Later, US President Barack Obama telephoned Mr Zapatero to urge resolute action to strengthen the economy.

The measures announced in Congress are Spain's response.

Inevitable measures

It is an about-turn from a government that has long argued against dramatic spending cuts, as a threat to Spain's slow return to economic growth.

So opposition leader Mariano Rajoy has accused the prime minister of improvising economic policy on orders from abroad.

The right-wing newspaper El Mundo criticised Mr Zapatero for acting too late.

The left-wing El Pais described Wednesday as his "toughest day in office" - the man who hates unpopular policies, forced to announce painful wage cuts.

"I think most people know he was compelled to do this, from abroad," says economist Ismael Sanz, from King Juan Carlos University in Madrid.

"But I think they blame him for not acting sooner, and in a softer way."

Mr Sanz points out that a key challenge for Madrid now is ensuring that Spain's regional governments actually implement the cuts.

The "communities" are responsible for some 60% of public spending - and some are run by the opposition party, the PP.

But Mr Sanz says most Spaniards, having watched the debt crisis in Greece unfold, will accept that the measures announced by Mr Zapatero were inevitable.

"These measures will succeed in the end, because they have to," he says.

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