Spain to slash spending as economy slumps back into recession

Street art in Madrid, ahead of a general strike on Thursday against austerity measures Photo: Demotix

By Ambrose Evans-Pritchard


Spain’s fragile economy has fallen back into recession and the country faces a year of grinding economic decline as premier Mariano Rajoy slashes spending yet further to meet EU demands.


The Bank of Spain said the “contractionary dynamic” in the economy continued into early 2012 for the second quarter in a row, with an “intensifying” pace of job losses. It expects GDP to fall by 1.5pc this year.

Mr Rajoy said at a meeting in Seoul that he would press ahead later this week with a “very austere budget”, ordering 15pc cuts in spending across the ministries.

The conservative leader promised a “fair and just” distribution of pain. Public sector salaries will be frozen rather than cut and there will be no rise in VAT.

It is unclear how he can slash the budget deficit from 8.5pc of GDP last year to 5.3pc to meet the compromise target agreed with Brussels after a bruising confrontation.

“It is frankly impossible, given that it would aggravate the recession and this would crush state revenues,” said Jesús Fernández-Villaverde from the University of Pennsylvania.
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