Spanish markets see worst month since Lehman collapse (3)

19:44, June 01, 2010      

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Political uncertainty was also influential in the Spanish markets during the past month.

The government last week secured the most severe austerity plan in Spain's recent history after the parliament approved it by just one vote.

The plan, aimed to cut the public deficit from the current 11.2 percent of Spain's GDP to 6 percent in 2011, includes a reduction in public wages and a pension freeze. Investors now fear that these measures may slow the economic recovery.

During parliamentary debate over the austerity plan, political groups that had supported Prime Minister Jose Luis Rodriguez Zapatero's minority government criticized the socialist leader's handling of the economic crisis.

Meanwhile, the government has another serious challenge to face in labor reform. Negotiations between unions and business leaders broke down during the agreed timetable set for May.

Finance Minister Elena Salgado has announced that the government will enforce labor reforms by July if a consensus fails to materialize in the extended schedule set by the negotiating agents. In light of that possibility, the unions have not ruled out a general strike.

Political isolation and a sharp fall in popularity as indicated by recent polls have put Zapatero against the ropes. The premier now has to make the best of his negotiating skills if he wishes to see his structural reforms through and gather the necessary support to approve next year's budget. Failing that, he may have to call for early elections.

Source: Xinhua
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