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Spain's PP vows deeper public spending cuts

Source: Reuters - Wed 23rd Feb 2011

Spain must slash public spending further and eliminate waste to regain financial market credibility and revive economic growth, the main opposition Popular Party's economy secretary said on Tuesday.

The centre-right PP, with a big lead in opinion polls, says it has the necessary backing on the street to introduce deep reforms if it wins a 2012 general election.

"(Spain has) inefficiencies, duplication, too many administrations doing the same thing. A lot of money is probably wasted on the ego of politicians but not on things that are useful to the public," Alvaro Nadal told Reuters on Tuesday.

"So these are the things that have to be changed," he said.

The Socialist government has responded to a severe economic slowdown by cutting public sector wages, eliminating or reducing selected welfare benefits and reforming the pensions system.

The economy is expected to grow slightly this year, but not enough to bring down unemployment of 20 percent, the highest rate in the European Union.

Prime Minister Jose Luis Rodriguez Zapatero trails the PP by at least 10 points in opinion polls and a general election is due in March 2012.

Nadal endorsed the tough approach of British Prime Minister David Cameron in setting public spending and borrowing ceilings, ring-fencing priority services, and forcing ministers to live within strict budget limits.

Spain could save "billions" of euros by making the public sector more efficient, he said, but he declined repeatedly to be drawn on how many job losses this might mean.

"As an example, almost 2 billion euros are spent by local and regional governments on foreign aid. That's not very sensible, seeing as central government is the one that cares for international relations," Nadal said.


Central government accounts for only about half of Spanish public spending, with much expenditure carried out by powerful regions and local government, often controlled by a different political party from those in power in Madrid.

This could hamper the PP's ambitions to curb spending.

bulk of the cuts would not affect social spending, Nadal said, although cases where regional authorities top up central government employment subsidies would be eliminated.

"(Public sector cuts) do not necessarily mean you are going to cut services or jobs. It means that there is money that you are not going to spend because it is not useful," Nadal said.

Depicting the prime minister as a reluctant latecomer to reform, he said: "(Zapatero) has been forced to open a door he wanted to keep closed ... he's stepped in and has pulled back."

The PP also wants a further reaching labour reform including more training for workers and a new collective bargaining system that takes account of unemployment in setting wages.

"Even the unions have realised that the rules must change .. what you need to do is to create a social consensus, establish a national target and get everyone on board."

Zapatero has set a mid-March deadline for employers and unions to agree on a reform of collective bargaining, and said the government will legislate on its own if they cannot agree.

Nadal said euro zone governments were sending financial markets the wrong message on their commitment to budget stability by focusing debate on plans to strengthen the multi-billion euro euro zone rescue fund.

"We are talking too much about the (European Financial Stability) Facility. It should be something that is there but is never used."

Regarding Spain's target to reduce the public deficit to 3 percent of gross domestic product in 2013 from 11.1 percent in 2009, he said a PP government would aim to go further by earmarking any extra tax revenue for fiscal consolidation.

"To reduce to 3% is a "C", and you need to get an "A". If the economy starts to move faster and things are going well, the extra revenue will only be used to reduce the deficit and pay down debt."

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