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Pensions to be raised in Line With Inflation to Meet Election Pledge

Source: Bloomberg - Fri 23rd Dec 2011
Pensions to be raised in Line With Inflation to Meet Election Pledge

Spain's new government will increase pensions next year in line with forecast inflation, meeting an election pledge, even as it plans to cut the budget deficit in half over 2 years.

The Cabinet will pass emergency budget measures at its next meeting on Dec. 30. It will also approve an "update of all pensions in line with the forecast for the consumer price index," Deputy Prime Minister Soraya Saenz de Santamaria told reporters today after the government's first meeting in Madrid.

Spanish consumer prices rose 2.9% from a year earlier in November, according to the National Statistics Institute. BBVA, Spain's second- biggest bank, estimated last month that inflation will slow to an average rate of 1.2% in 2012.

Raising pensions, which were frozen in 2011 and accounted for 112 billion euros in this year's budget, reduces the government's room for maneuver as it seeks to cut the euro region's third-largest shortfall. Budget Minister Cristobal Montoro will make emergency spending cuts next week to carry Spain through until March, when the 2012 spending plan goes to Parliament.

Economic Policy

Spain has pledged to cut the deficit to 4.4% of GDP next year and 3% in 2013. The outgoing Socialist administration had aimed for a shortfall this year of 6%, which the European Commission says will be missed as it estimates a shortfall of 6.6%.

Rajoy will lead the weekly economic-policy meeting and oversee economic issues himself, rather than delegating to a deputy prime minister, as previous leaders have done, Saenz de Santamaria said. The People's Party's economy secretary Alvaro Nadal was appointed to lead Rajoy's economic bureau.

The Cabinet named Fernando Jimenez Latorre as deputy minister for economy and companies, and Jaime Garcia-Legaz Ponce, secretary general of the Faes research institute, as deputy minister for trade.

Antonio Beteta Barreda, a minister in the regional Madrid government, was named deputy minister for public administrations.

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