Spain Announcements for relaxing of austerity measures

The Spanish minister of Economy, Ms. Elena Salgado, announced that some of the cost cutting measures will be canceled. This decision emerged after the reduction in borrowing costs which offered the opportunity to the Spanish government to stimulate further the economy and the very same time to continue the efforts to reduce the deficit.

According to Ms. Salgado, cuts in spending on public works will be reduced by half a billion, as Spain has the ability to achieve the targets for reducing the deficit without issuing a further increased tax package. We sound note here that last month, the Spanish government increased the Value Added Tax by two percentage points.

Trade unions and construction companies had warned that reducing the investments – a sum around 6.4 billion – for infrastructure projects, will have as a result the loss of more than 100,000 jobs, while Spain suffers by one of the highest unemployment rates in Europe ( 20 %).

The government has six weeks to present the budget for 2011 and Ms. Salgado noted that the government will maintain the commitment to reduce the deficit to 6%, indicating that the public works funding will be possible by loans of lower borrowing costs.

Another positive sign was that the high risk loans of Spanish banks decreased by 1.36 billion Euros in June dropping to 43.38 billion Euros. Additionally, the European bond market showed great interest as the selling of Portugal’s treasury bills was successful just one day after the “confidence” of the investors in the Irish and Spanish debt auctions.

Lisbon managed to raise 1.5 billion Euros from the sale of treasury bills, as the average yield on three-month bonds reduced almost by half, to 0.991%, compared to the 1.861% in June.
The twelve-month treasury yield strengthened marginally to 2.727% while the borrowing cost of Germany fall to historically low levels, to 2.37% – during the ten-year bond auction sale.