Spain announced dramatic cuts to public sector salaries and Greece received its first injection of an IMF bailout on Wednesday as Europeans faced up to the reality of their massive debt crisis.
France announced worse than expected growth figures, Austria admitted that its recovery had stagnated and Greece and Romania confirmed they were still in recession, while Germany put a brave face on weak but positive results.
The formation of a coalition government in Britain cheered The City, but markets within the eurozone were mixed as traders evaluated the effects of austerity measures and Europe’s new trillion-dollar emergency fund.
Wednesday’s most severe new measures came in Spain, home to the eurozone’s third largest deficit after Ireland and Greece, where Prime Minister Jose Luis Rodriguez Zapatero ordered a five percent public sector wage cut.
Government salaries and pensions, except for those for the poorest, will remain frozen in 2011, he said, admitting that this would have “an obvious social impact” in a country struggling with 20 percent unemployment.
Spain’s credit rating was cut by Standard and Poor’s last month and it has been talked of, along with Portugal, as a possible new weak link in a eurozone already shaken by Greece’s massive debt crisis.
The deficit ballooned to 11.2 percent of GDP in 2009, in the wake of the global financial crisis and the collapse of a housing bubble, and Spain’s economy has been the target of speculative attacks on the markets.
Spain introduced a 50-billion-euro austerity package in January, but this has not proved sufficient to quell fears of an eventual debt default, forcing the Socialist government to take new measures.
These included scrapping a 2,500-euro payout to parents for the birth of children, a key part of Zapatero’s social platform.
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Crisis