Spain Lowers Public Wages After EU Aid Plan Sought Deeper Cuts

Will they riot like Greece?

May 12 (Bloomberg) -- Spain will reduce public wages 5 percent this year and freeze them in 2011 in response to calls from European finance ministers for deeper budget cuts as part of an almost $1 trillion aid package for indebted euro nations.

The public-wage cut comes into effect in June, while a planned increase in pensions will be suspended next year and the government will eliminate a 2,500-euro ($3,168) subsidy for new parents, Prime Minister Jose Luis Rodriguez Zapatero told lawmakers today in Madrid. The measures will reduce the deficit by an additional 1.5 percentage points of gross domestic product over two years, taking the shortfall to 6 percent of GDP in 2011.

Zapatero called for a “collective national effort” to “restore confidence in the Spanish economy.” Members of the government will see their wages cut 15 percent and public investment will be reduced by 6 billion euros next year, he said.

Will Britain follow suit? Meanwhile, Obama is going in the opposite direction.