Spain teeters on the brink of social unrest

• In order to avoid the fate of Greece, the government in Madrid announced drastic measures to cut public spending

• Newspapers say that Spain might need to take out a loan of EUR 280 billion

Spain in on the edge of social unrest.

Citizens are extremely unhappy with the drastic measures announced by the Government in order to lower the budget deficit.

Fearing Spain would suffer a fate similar to that of Greece, the government in Madrid announced a new set of measures intended to cut the budget deficit for 2010 and 2011, the reduction of the budget by EUR 15 billion.

The measures announced by the leader of the government, Jose Luis Rodriguez Zapatero, could be accompanies by a hike in taxes, according to the Spanish press.

The amount seems shocking, but the Spanish government is decided to "take the bull by the horns" and to adjust its public expenses in order to avoid the economic collapse.

What is at stake is not just the macroeconomic stability of Spain, but that of the European Union itself, in particular of the Eurozone. Foreign pressure to begin reforms are extremely strong, from the EU and the US alike.

All of the above would be complemented by a record loan from the IMF, amounting to 280 billion Euros. French journalists of "La Tribune" announced, quoting official sources, that the Spanish government and IMF officials are secretly discussing a loan. The news was not officially confirmed.

• Nine measures to avoid the fate of Greece

The nine measures announced by the Spanish government, which also consist of cutting public expenses, as well as cutting investments, are harsh, but extremely necessary, Spanish experts say.

Wages of public sector workers would be cut by 5% in the second half of the year and frozen next year, which the government expects would save 4.1 billion Euros.

Pensions would remain frozen in 2011, and partial retirement would be eliminated. The government expects to save 1.3 billion Euros through these measures in 2010 and 2011.

A new policy for subsidizing drugs would be implemented, which will lead to savings of 2.78 billion Euros, essentially eliminating subsidies for the pharmaceutical sector.

The government also plans to scrap a 2,500-euro payout to parents for the birth of children starting with January 1st, 2011, as well as to restructure the welfare system. The Madrid government hopes to save EUR 1.9 billion by these measures.

Furthermore, aids for foreign countries will be cut in 2010 and 2011, by 600 million Euros, public investments will shrink by EUR 6 billion, and regional administrations will be required to save an additional EUR 1.2 billion, compared to the 10 billion they had been asked to save in the beginning of the year.

• Foreign mandated reform?

Talk in the political circles in Spain is that these measures were imposed by the international community.

Before the announcement of the nine austerity steps, the leader of the Spanish government, Jose Luis Rodriguez Zapatero and American president Barack Obama, had a talk on the phone in which the latter had urged Spain to begin reforms in order to protect the stability of the Eurozone and of the world economy.

The measures announced by the Spanish government were hailed by EU officials. Joaquim Almunia, the Spanish Competition commissioner considers that these steps were necessary, and European Commissioner Olli Rehn says that the new reforms seem to represent "a step in the right direction" for Spain.

Mariano Rajoy, the leader of the opposing Popular Party, is discussing the fact that the reforms were imposed by the international community.

He blames Luis Zapatero for this: "These measures were forced upon us like a punishment on a lazy student. Our partners have already said that the student can"t be left to do what he pleases. (...) He cobbled together measures to cut costs by EUR 15 billion in three days. All this will come back and hurt him. He is the only one responsible for the largest cuts in social spending in history".

In an editorial in "La Razon", political analyst Ignacio Villa says that "Zapatero sold Spain"s independence and economic sovereignty to satisfy international demands".

Jose Luis Rodriguez Zapatero defends himself: "It is a difficult situation, but we are convinced that through these measures we will succeed in going forward. It isn"t easy for the government to go through with these measures, but they are necessary, and thanks to them, we will succeed in bringing back the deficit of the GDP from 12.6% to just 6%".

• Statistics Institute: Spain exits recession

The general state of discontent in Spain was fueled by the fact that these measures were announced just after the Spanish National Statistics Institute (INS) announced that "Spain has already exited the recession".

The INS said that the GDP increased 0.1% in Q1 2010, compared to Q4 2009, according to the El Pais daily.

Under these circumstances, the population and businessmen are extremely unhappy. Employees were expecting their wages to increase by 0.3%, not to see them cut by almost twice as much. Unions, NGOs, and opposition parties have announced a general mobilization to begin protests.