Spain: Rajoy outlines broad reforms

Mariano Rajoy, Spain’s new prime minister, has confirmed the key policies to be implemented by his government to deal with the country’s economic and social crisis.

The government’s main priorities will be to cut the budget deficit, to reform the economy including the labour market, and there will be a push to resolve the domestic banking crisis.

In a speech to the parliament on Monday, Rajoy said his government will introduce tax incentives to help companies recruit more workers. With unemployment at around 5 million or about 23% of the workforce, creating new jobs will be a top priority. The government also plans to increase pensions, which will be the only area of public spending to rise under the 2012 budget.

More details of the spending cuts will be announced on December 30 and a new budget will be presented for 2012 before March 31. He did not give details of how he will find the €16.5bn in spending cuts deemed necessary next year under a budget set by his predecessor.

This year’s budget deficit may also end up higher than the original 6% of gross domestic product forecast by the previous government.

Rajoy said one of his first measures will be to propose a constitutional amendment limiting the structural budget deficit to 0.4% of GDP. The country’s debt will be capped at 60% of GDP by 2020.

Solving the banking crisis would be a major priority with banks encouraged to sell their stock of properties and to make a “prudent” valuation of land and unfinished real-estate assets. The banks are estimated to hold €176bn of troubled assets linked to real estate, though the actual amounts may be higher. The government will introduce measures in the first half of next year to boost liquidity and credit, thereby helping to create jobs and boosting economic growth, he said.

With economic growth almost at a standstill, Rajoy warned that the economy would face severe difficulties in the first half of next year.

The new government will officially take office on December 21.

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