Spain’s deficit shock rocks eurozone

Spain’s new government has said this year’s budget deficit would be larger than expected and announced a slew of tax hikes and wage freezes likely to return it to the centre of the eurozone crisis.

In its first decrees since sweeping to victory in November, the centre-right government yesterday said the public deficit for 2011 would be 8 per cent of gross domestic product, well above a target of 6 per cent.

It announced spending cuts of €8.9 billion (£7.4bn) and tax rises aimed at bringing in an extra €6bn a year. “This is just the beginning.

“We’re facing an extraordinary and unexpected situation, forcing us to take extraordinary and unexpected measures,” said deputy premier Soraya Saenz de Santamaria.

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