Spanish MPs pass austerity measures by a single vote

EMERGENCY measures to cut Spain's bloated deficit passed by just one vote in parliament yesterday, saving the Socialist government from an embarrassing defeat and suggesting the depth of resistance to the spreading austerity measures aimed at halting Europe's government debt crisis.

The package, which includes a cut in civil servants' salaries, was approved by 169 votes in favour, 168 against and 13 abstentions in the 350-seat lower chamber.

A defeat would have been a serious blow for the Socialist government of prime minister Jose Luis Rodriguez Zapatero, which is trying to show it can handle Spain's chapter of the European sovereign debt crisis.

The measures have been welcomed by the Europe Union and international economic bodies but much criticised at home as a major U-turn on social policies by the Socialists.

They aim to cut spending by 15 billion (12.7bn) this year and next.

Prior to the vote, finance minister Elena Salgado pleaded with parliamentarians to vote in favour of the measures, saying they were "painful but inevitable" in order to reduce the deficit.

Spain is coming under increasing pressure to introduce labour market, fiscal and banking reforms to cut its large deficit from 11.2 per cent of gross domestic product in 2009 to within the EU limit of 3 per cent by 2013.

The package is also aimed at trying to halt market speculation that the debt crisis affecting Greece might spread to countries such as Spain and Portugal.

Fearing default, bond markets have begun demanding higher interest rates from troubled governments, with Greece shut out of the borrowing market and forced to take a 110bn bailout from the European Union and the International Monetary Fund.

The eurozone has also agreed on a $1 trillion loan backstop for other troubled countries if they need it.

Countries across Europe – including the UK, Italy, Ireland, Portugal and Greece – have announced spending cuts and tax increases to maintain public confidence in their ability to manage their finances.

The measures, many aimed at public employees, have drawn criticism from union leaders and protests, particularly in Greece.

Europe's top job creator two years ago, Spain now has the region's highest unemployment rate at just over 20 per cent and is the slowest of the major economies to emerge from the recession.

The Socialists needed a simple majority to get the measures approved and would have faced rejection had it not been for the abstentions.

The package was slammed by all parliamentary groups except the Socialists.

Mariano Rajoy, head of the leading conservative opposition Popular Party, called the measures "improvised, insufficient and unjust."

"My parliamentary group is not going to help you, the main problem of Spanish economy, to continue (as prime minister]", he told Mr Zapatero during debate before the vote.

Josep Antoni Duran y Lleida, a Catalan politician leading a coalition called Convergencia i Unio, said that he would abstain from the vote and save the government only out of a sense of duty to Spain.

"I don't want Spain to be helped out like Greece," Mr Duran y Lleida said.

However, he added that Mr Zapatero's time was running out and joined the Popular Party in calling for elections, currently scheduled for 2012, to be brought forward.

The emergency measures involve a cut in public sector wages by an average of 5 per cent from June and a freeze on them and on most retirement pensions in 2011.

On Wednesday, Mr Zapatero announced that Spain would also introduce a new tax for the country's highest-income earners, in a clear bid to stave off criticism that only low-income earners were being targeted by the cutbacks.

Earlier in the week, politicians in both chambers of the Spanish parliament agreed to cut their base salaries by 10 per cent while municipal governments announced pay cuts of as much as 15 per cent for mayors and other local elected officials.

Spain is now looking to the country's two main labour unions and employers group to come up with an agreement on badly needed labour reforms before the end of the month.

Otherwise, the government has hinted it will imposed them itself.

Those talks and today's weekly cabinet meeting were cited by officials as the reason behind Mr Zapatero's unexpected decision to cancel a planned trip to Brazil yesterday to attend an Alliance of Civilizations forum, a UN-backed initiative to encouraging understanding between Muslims and the West.