Spain announced dramatic cuts to public sector salaries and Greece received its first injection of an IMF bailout 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.
British leadership cheered
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.
Initial measures unhelpful
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. Along with the wage freeze, the new belt-tightening ought to save 15 billion euros over two years.
Greece, meanwhile, was to receive the first slice of a massive International Monetary Fund bail-out loan designed to prevent it from defaulting on its debt.
“We expect the funds today,” a finance ministry official told AFP. “The IMF will provide 5.5 billion euros (7 billion dollars) today and we expect an instalment from the European Union early next week.”
The EU has agreed to give Greece 14.5 billion euros as a first step.
Athens needs to make a payment of nine billion euros on a maturing 10-year bond on May 19 and any sign of falling short would be viciously punished by the markets.
But the arrival of the emergency cash will do nothing to quell anger on Greece’s streets, where the intervention of the European Union and the IMF is resented by left-wing protesters opposed to draconian cuts.
Greece’s two main unions, which represent some 1.3 million civil servants and private employees, were to hold a new rally in Athens later Wednesday, after a wave of street protests and three general strikes.
“The country’s workers are maintaining the struggle and their opposition to the package of unjust and harsh measures,” the General Confederation of Greek Workers (GSEE), a private sector trade union, said in a statement.
Greece’s loan is part of a 110-billion euro (140-billion dollar) rescue package agreed with the EU and the IMF earlier this month, the first to be issued to a member of the eurozone single currency bloc.
Athens’ latest deficit-cutting effort is a pension overhaul unveiled this week to reduce average retirement payments by seven percent by 2030, while the upper category of pensions would be cut by up to 14 percent.
Governments across Europe announced new growth figures on Wednesday, with most confirming that their economies are continuing a slow and unsteady crawl out of recession, with little sign of gathering momentum.
The eurozone economy as a whole grew only 0.2 percent in the first quarter compared to the last quarter of last year.
Germany’s economy, Europe’s biggest, grew by a modest 0.2 percent in the first quarter. More than forecast, but still anaemic. Italy’s 0.5 percent growth exceeded both expectations and the eurozone average.
France’s growth figure was both lower than Germany’s, at 0.1 percent for the first quarter, and lower than forecast, leading the state statistics agency INSEE to recalculate the public debt to a record 78.1 percent of GDP.