Spain's new government decides first wave of cuts

Spaniards prepared to bite the bullet Friday as a new right-leaning government met to decide its first wave of spending cuts ushering in an austere New Year. Prime Minister Mariano Rajoy, the grey-bearded 56-year-old leader who won a crushing victory over the Socialists in November 20 elections, held talks with his ministers to pare back government costs. Barely eight days after being sworn in, ministers gathered in Madrid's Moncloa palace for a second time, expected to announce the first wave of a total 16.5 billion euros ($21.7 billion) in budget savings for 2012. Rajoy, who leads the conservative Popular Party, has vowed to meet Spain's target of reducing the public deficit to 4.4 percent of gross domestic product in 2012, come what may. If, as is widely expected, Spain overshoots the 2011 deficit target, which is 6.0 percent of GDP, he has promised to cut even deeper. The required savings eventually may approach 30 billion euros. A full budget plan is to be unveiled in March when the 2011 public deficit is known, the new government says. Only pensions will escape the knife, Rajoy has promised, and ministers are expected to carry out a Popular Party campaign promise to raise pensions in line with inflation, reportedly by 1.0 percent. The government must also issue a decree extending the budget into the New Year. In a first austerity measure ahead of the New Year, it is expected to approve a rule setting the replacement rate for public sector staff at zero except for the security services -- also a campaign promise. Spain's business daily Expansion predicted a series of other austerity measures: A 30-percent cut in spending at government ministries, equal to a reduction of 1.9 billion euros, with official cars, food, travel and consultancies in the firing line to set a public example; A freeze in public sector pay; A sharp reduction in investment in public works. The paper said the new government would also abandon the previous administration's plans to sell a 30-percent stake in the national lottery to rake in up to 7.5 billion euros ($10 billion). The last government postponed the sale in September, blaming plunging markets that would have slashed the sale price. Rajoy preferred to follow the model of Britain's national lottery, with the capital remaining in state hands while the management of the lottery was privatised, the newspaper said. The new government also may scrap a 210-euro monthly grant to young people renting homes, which had enabled more than 300,000 people to enter the property market, Expansion said, citing an unnamed Popular Party official. Ministers have promised also to draw up labour market reforms, and clean up the financial sector, bogged down with dodgy property assets. The government plans to present a labour market reform on January 7. Rajoy has asked business and union leaders to agree on changes to the collective bargaining system, hiring laws and other employment issues.