Thread: Roundup Of Eurozone Austerity Measures

Eurozone austerity measures: a round-up

Here are some details on austerity measures implemented by governments around the eurozone.

Reuters
Published: 11:50AM BST 08 Jun 2010

GERMANY:

Chancellor Angela Merkel said her government aims to save around €80bn between 2011 and 2014 and get the German budget deficit below European Union limits by 2013.

The cabinet agreed a package on June 7 which will slash welfare spending by €30bn over the period, cut public sector payrolls by up to 15,000 by 2014, and raise new taxes on nuclear power plant operators and air travel.

The government also hopes to realise some €5.5bns through subsidy cuts, and raise around €2bn per annum with a financial transaction tax. Berlin is also considering cutting the armed forces by 40,000.

PORTUGAL:

Prime Minister Jose Socrates told parliament on June 4 that Portugal was on track to meet its buget deficit goals for the year.

Socrates and opposition leader Pedro Passos Coelho drew up steps on June 3 to slash the budget deficit, including 5pc pay cuts for senior public sector staff and politicians, and increases in VAT sales tax, income tax and profits tax ranging from 1pc to 2.5pc.

The cabinet approved the programme on May 20. The government said it aims to save €2bn this year in order to cut the deficit to 7.3pc of GDP in 2010 and 4.6pc in 2011. In 2009 it hit 9.4pc, prompting a sell-off of Portuguese assets by investors.

A June 3 vote was on the general guidelines of the measures, which under Portuguese parliamentary procedure is subsequently followed by a detailed line-by-line vote of each item. That vote is scheduled for June 9 but with the guidelines approved the total amounts of the plan cannot change.

SPAIN:

Prime Minister Jose Luis Rodriguez Zapatero announced on May 12 fresh spending cuts totalling €15bn in 2010 and 2011. Civil service salaries will be cut by 5pc in 2010 and frozen in 2011, while more than €6bn will be cut from public investment.

The cuts are aimed at speeding up fiscal consolidation and meet Spain's revised deficit targets of 9.3pc of GDP in 2010 and 6pc in 2011, compared with 11.2pc in 2009.

Public debt as a percentage of GDP is seen at 65.9pc in 2010, rising to 71.9pct in 2011.

ITALY:

On May 25 a cabinet meeting approved a €24bn deficit cut and measures such as delaying retirement dates by between three and six months, a state salary freeze and cuts to the pay of high public sector earners.

Regional and local governments will be pressed to contribute some €13bn of spending cuts in 2011-2012, sources said, almost inevitably affecting schools and hospitals. Busy arteries such as Rome's ring road may become toll roads.

Though Italy kept its budget deficit down to 5.3pc of GDP last year – well below the EU average – the budget aims to slash it to 2.7pc by 2012.

FRANCE:

President Nicolas Sarkozy has said France will look to restore its public finances as the economic recovery takes root.

In an effort to keep a lid on the budget deficit, France has said it will freeze all spending, except pensions and interest payments on government debt, between 2011-2013 and cut state operating costs by 10pc over the same period. Mr Sarkozy has said this does not amount to an austerity plan.

GREECE:

An International Monetary Fund mission will hold talks with Greek authorities from June 14 to June 18 in Athens.

Greece has approved a pension reform bill, after agreeing with the European Union and the International Monetary Fund a fresh set of austerity measures aimed at pulling the country out of a severe debt crisis that has shaken the eurozone.

Under the EU-IMF deal, Greece plans to narrow its budget shortfall from 13.6pc of GDP in 2009 to 8.1pc this year, 7.6pc in 2011 and 2.6pc in 2014.

Austerity measures include a public sector pay freeze until 2014. Public sector allowances are cut by an additional 8pc. These allowance were cut by 12pc under a round of austerity measures announced in March.

The main VAT rate is increased by 2 percentage points to 23pc. Excise taxes on fuel, cigarettes and alcohol are increased by a further 10pc.

The government has said it will freeze pensions in 2010, 2011 and 2012. The statutory retirement age for women is set to be raised by 5 years to 65 to match the retirement age for men.

IRELAND:

The government's budget for 2010 presented in December projected a deficit of 11.6pc of gross domestic product. The median forecast of analysts polled by Reuters is for Ireland's budget deficit to come in at 11.5pc.

Three austerity budgets presented in little over a year: in Oct 2008, April 2009 and Dec 2010. With the first two budgets focused on tax rises, December's budget for 2010 drew most praise as it delivered spending cuts of €4bns, including a cut in public sector pay.

Fresh savings of €3bn planned for each of 2011 and 2012.

http://www.telegraph.co.uk/finance/econ ... nd-up.html

UK coalition must cut budget deficit faster, Fitch ratings agency warns

Fitch noted that the new coalition government has acted 'very quickly' to make fiscal consolidation its top priority

Comments 291
Julia Kollewe guardian.co.uk
Tuesday 8 June 2010 11.09 BST

Credit ratings agency Fitch warned today that the UK faces a "formidable" fiscal challenge and called on Britain's coalition government to speed up efforts to cut the record budget deficit.

Fitch noted that the rise in public debt ratios since 2008 has been faster than in any other AAA-rated country. Britain's deficit is nearly twice as large as that seen during previous economic downturns in the 1970s and early 1990s.

The pound fell on the report, dropping more than half a cent against the dollar, to $1.4382, while the euro hit a high for the day of 82.91p.

David Cameron warned on Monday that annual interest payments on the UK's "staggering" debt would rise to around £70bn a year, from £42bn today, within five years unless drastic public spending cuts are made.

Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments, said: "The gloomy outlook from Fitch is weighing heavily on sterling this morning and will have heightened investor fears of a debt downgrade to the UK sovereign debt rating.

"The fact that Fitch has felt the need to comment on the UK deficit again is an indication that they are still considering downgrading the UK's sovereign debt rating. This will turn up the pressure on the new coalition government … The conundrum the coalition face is balancing the necessary spending cuts and higher taxes without derailing our fragile economic recovery."

Fitch noted that the new coalition government had acted "very quickly" to make fiscal consolidation its top priority and has announced immediate tightening measures of 0.4% of GDP in the form of spending cuts and an emergency budget on 22 June.

In light of the £6bn spending cuts and downward revisions to last year's deficit, it is "highly likely" that the 2010-11 deficit target will be lowered from the 11.1% set out in the April budget by then-chancellor Alistair Darling.

But the ratings agency is still concerned about the coming years. It called on the new government to adopt a more ambitious deficit reduction path – with borrowing 1% lower than forecast in the April budget – which would result in an earlier peak in debt relative to GDP and a clearly declining debt path over the medium term.

"This would help in going some way to restoring 'fiscal space', or a cushion against future shocks," the ratings agency said. "Achieving such a path purely on the basis of further spending cuts, would imply unprecedented real declines in primary spending."

Fitch pointed to austerity measures adopted in other European countries and increasing market concerns about sovereign risk in advanced countries. In light of this, "both the size of the UK deficit currently projected for 2011 and the failure to reduce it to 3% of GDP within five years are striking," it said.

Hundreds of Spanish civil servants began a one-day strike today to protest against 5% pay cuts ordered by the Socialist government as part of a plan to save €15bn (£12.4bn) this year and next.

Opposition is also building to wide-ranging cuts in Germany, where chancellor Angela Merkel aims to save around €80bn between 2011 and 2014 to get the budget deficit below EU limits by 2013. The cabinet agreed a package which will slash welfare spending by €30bn over the period, cut the number of public sector workers by up to 15,000 by 2014, and raise new taxes on nuclear power plant operators and air travel. The government also hopes to save some €5.5bn through subsidy cuts, and raise around €2bn a year with a financial transaction tax. Berlin is also considering reducing the armed forces by 40,000.

http://www.guardian.co.uk/business/2010 ... ster-fitch

Germany to Cut Welfare, Slash $96 Billion by 2014

Tuesday, 08 Jun 2010 08:33 AM

Germany will cut welfare benefits, introduce new taxes and shed government jobs to save as much as 80 billion euros ($96 billion) through 2014 and set an example for the rest of Europe, Chancellor Angela Merkel said Monday.

The wide-ranging savings package finalized by the Cabinet includes trims in social programs such a subsidy for new parents who stay home, more taxation for the nuclear power industry, and delaying the building of a replica of a Prussian palace in the heart of Berlin.
Merkel said as many as 15,000 federal government jobs could be shed through 2014.

In addition, the government wants to levy a special charge on passengers flying from German airports until aviation is included in an international carbon dioxide emissions trading scheme. Looking farther ahead, the Cabinet said it hopes to save money by reforming the military and will consider trimming the 250,000-strong force by up to 40,000.

The new nuclear tax is aimed at netting 10 billion euros throughout 2014, but the bulk of the savings will come from the welfare budget — a total of 30 billion euros.

Most of the measures still have to be approved by parliament, where Merkel's conservative government has a majority.

While Germany's finances are in a better state than those of many others in the 16-nation euro zone, its budget deficit is still above the maximum allowed by European Union rules and it has been particularly keen to preach the virtues of solid budgets.

"Germany, as the biggest (European) economy, has the outstanding task of setting a good example," Merkel said at a news conference after her Cabinet thrashed out the package at a two-day meeting.

"I must say that the last few hours were a singular show of strength — about 80 billion euros needs to be saved though 2014 so that our financial future can once again stand solidly," she added.

"The last few months have shown — in connection with Greece and other euro states — what outstanding significance solid finances have, that they are the precondition for being able to live in stability and prosperity," Merkel said.

Germany had a budget deficit of 3.1 percent of gross domestic product last year. It is expected to exceed 5 percent this year, well above the European Union's 3 percent threshold, and Berlin says it aims to comply with the rules again by 2013.

In addition, even before the euro zone debt crisis the government had anchored a so-called "debt brake" in the constitution that forces it to cut back borrowing over the coming years.

Though the entire savings through 2014 amounts to some 80 billion euros, the calculation is made on a cumulative basis incorporating the savings from previous years, said UniCredit economist Alexander Koch.

Adding together only each year's new savings, the figure comes to 26.6 billion euros, he noted — "somewhat less than they originally planned" in order to get the budget deficit back within the EU rules, he said.

Given that the country is still trying to get on its feet after the economic downturn, it was also positive that there were no major tax increases in the plan, Koch said.

Merkel's center-right coalition came to power last October pledging tax relief, but recently shelved tax cuts for at least the next two years.

In drawing up its package to tackle the deficit, it steered clear of cutting education spending and increasing value-added or income tax.

Planned overall spending in this year's budget is 319.5 billion euros.
Opposition politicians and union officials criticized the prospect of cutbacks on social spending.

"This is about more redistribution from the bottom to the top," said Gesine Loetzsch, a leader of the opposition Left Party.

The head of Germany's labor union federation, Michael Sommer, argued earlier Monday that Germany should increase taxes for the rich and introduce a financial market transaction tax to help narrow its budget gap.

"In a situation like this ... we must do everything to stabilize the state's finances — and that means those who have more really being drawn on to finance this state," Sommer said on Suedwestrundfunk radio.

http://www.moneynews.com/StreetTalk/Ger ... /id/361344