Spain has followed Ireland and Greece in imposing 1930s-era wage cuts to slash the budget deficit, complying with EU demands for further austerity in exchange for the €720bn `shock and awe’ rescue for eurzone debtors.
The Telegraph, 12 May 2010
Premier Jose Luis Zapatero told a stunned nation that public sector pay will be reduced by 5pc this year and frozen in 2011. "We must make an extraordinary effort," he said.
Pension rises will be shelved. The country’s €2,500 baby bonus will be cancelled. Aid to the regions will be slashed and infrastructure projects will be put on ice. Mr Zapatero’s own monthly pay will fall 15pc to €6,515.
Mariano Rajoy, the conservative opposition leader, said years of ostrich-like denial by the Zapatero team had reduced the country to an EU "protectorate".
Commission president Jose Barroso unveiled plans for EU control over national budgets, including an incendiary demand that Brussels should vet budgets before their first reading in Westminster, the Bundestag, and other parliaments. Current account deficits and credit growth will be monitored. Brussels can imposing sanctions on states that let booms run out of control. "We must get to the root of the problems," he said.
Such a plan would greatly improve the working of the EMU system, but it would also entail a drastic erosion of sovereignty. The intrusive surveillance is a wake-up call for states that have tended to view the euro as a free lunch.
Mr Zapatero - who long prided himself on being an "anthropological optimist" - plans to cut the deficit from 11.2pc to 6pc of GDP this year, with further cuts next year. The fresh move is to placate bond vigilantes and to calm German fears that eurozone discipline is breaking. He has already raised income taxes and lifted VAT from 16pc to 18pc.
US President Barack Obama played a key role behind the scenes, pleading with Mr Zapatero for "resolute action". The telephone call from the White House is a clear indication that contagion from Greece and Portugal to the much larger debt markets of Spain had become a global systemic threat by late last week.
