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Spanish gov’t joins euro zone austerity bandwagon
The announcement came two days after euro zone governments, the European Central Bank and the IMF agreed on a $1 trillion rescue package to stabilize the euro in exchange for pledges from highly indebted European countries to cut their deficits.
Portugal’s finance minister said his government had picked a set of new measures for deeper spending cuts and would discuss them with the opposition before announcing them.
US President Barack Obama, who has intervened in the euro zone crisis because of risks to US banks and economic growth, telephoned Zapatero on Tuesday to press for “resolute action” to strengthen the Spanish economy, the White House said.
Spain enjoyed more than a decade of rapid growth fueled by EU regional aid and low euro interest rates, and long boasted a healthy budget balance and low debt. But public finances were severely hit by the collapse of a construction bubble in the 2007-8 credit crisis. The economy has lost competitiveness and unemployment stands at 20 percent of the workforce. After months in denial about the need for tougher measures, Zapatero announced an estimated 6 billion euros in additional savings this year.
Green light for Estonia
In a reminder that east European countries are still keen to join the 16-nation single currency, Estonia won a green light from the European Commission to join the euro area in 2011.
EU finance ministers are expected to ratify the decision in June, but the Baltic state is likely to be the last country to join for at least four years because other candidate countries have seen their deficits rise beyond the EU limit in the crisis.
Spanish and Portuguese borrowing costs soared last week as investors fled peripheral euro zone government bonds amid jitters over Greece’s acute debt crisis spread to other highly indebted EU countries. But Portugal and Germany staged successful bond auctions on Wednesday after European Central Bank purchases of euro zone government debt in the market steadied investors’ nerves.
In a drive to tighten fiscal discipline and prevent a re-run of Greece’s fraudulent statistics and ballooning deficit, EU Economic and Monetary Affairs Commissioner Olli Rehn unveiled proposals for greater budget coordination on Wednesday.
The key plank would be for governments to submit their draft budgets to Brussels for scrutiny and peer review by other member states before they are adopted by national parliaments.
Rehn said this would enable the Commission and the European Parliament to “identify economic challenges for the EU and the euro zone” at an earlier stage and recommend changes.
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