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Austerity vote a victory for Spanish PM
By Daniel Woolls |
December 23, 2010, Thursday
|
Print Edition
Print Edition
SPAIN'S Parliament has passed an austerity budget for 2011 by a razor-thin margin, saving embattled Prime Minister Jose Luis Rodriguez Zapatero his job and giving him a victory in his bid to convince markets the nation can avoid a Greek-style bailout.
The lower house of congress passed the budget in a 177-171 vote, approving a 122 billion euros (US$160.4 billion) plan that cuts spending by 8 percent compared with 2010 and sets funding for government ministries at 2006 levels.
The vote came a week after ratings agency Moody's warned it might downgrade Spanish government debt because of grim prospects for economic growth.
Spain is struggling to emerge from nearly two years of recession triggered by a burst real estate bubble.
Unemployment stands at nearly 20 percent, and is much higher for young adults.
On Monday, Moody's Investor Service also announced it might downgrade the debt of Spanish banks, saying their capitalization, profitability and access to market funding will remain weak because of Spain's sour economy.
Failure to pass a budget would have been unprecedented since Spain returned to democracy in 1975 and probably would have forced Zapatero to call national elections next year. They are currently due in 2012.
Many economists worry that nations such as Greece, Ireland, Portugal and Spain will have trouble paying off their massive debts in light of weak to nonexistent economic growth, the steep austerity measures they have been forced to implement to keep budget deficits in check, and uncertainty about the health of their banks.
Those concerns have rocked bond markets in recent months and driven up funding costs for Spain and Portugal, which are still borrowing money on the open market.
Spain is key to the survival of the eurozone because its economy is the bloc's fourth largest, and investors fear that a bailout for the country would be too expensive for the zone to handle.
The lower house of congress passed the budget in a 177-171 vote, approving a 122 billion euros (US$160.4 billion) plan that cuts spending by 8 percent compared with 2010 and sets funding for government ministries at 2006 levels.
The vote came a week after ratings agency Moody's warned it might downgrade Spanish government debt because of grim prospects for economic growth.
Spain is struggling to emerge from nearly two years of recession triggered by a burst real estate bubble.
Unemployment stands at nearly 20 percent, and is much higher for young adults.
On Monday, Moody's Investor Service also announced it might downgrade the debt of Spanish banks, saying their capitalization, profitability and access to market funding will remain weak because of Spain's sour economy.
Failure to pass a budget would have been unprecedented since Spain returned to democracy in 1975 and probably would have forced Zapatero to call national elections next year. They are currently due in 2012.
Many economists worry that nations such as Greece, Ireland, Portugal and Spain will have trouble paying off their massive debts in light of weak to nonexistent economic growth, the steep austerity measures they have been forced to implement to keep budget deficits in check, and uncertainty about the health of their banks.
Those concerns have rocked bond markets in recent months and driven up funding costs for Spain and Portugal, which are still borrowing money on the open market.
Spain is key to the survival of the eurozone because its economy is the bloc's fourth largest, and investors fear that a bailout for the country would be too expensive for the zone to handle.
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