Spain will ease cuts in public works spending by 500 million euros next year and aims to fund the change through lower borrowing costs, Economy Minister Elena Salgado said on Wednesday. Previously the government had announced 6.4 billion euros in cuts in infrastructure spending, part of austerity measures aimed at trimming a massive deficit to an EU limit of 3 percent of gross domestic product by 2013, from 11.2 percent in 2009.
The government still has six weeks to publish its 2011 budget and Salgado said Spain is still committed to cutting the deficit to 6 percent of gross domestic product by next year. Spain's borrowing costs soared in May and June as investors began to worry that the country could follow Greece into a debt crisis. Country risk, as measured by the spread of Spanish over German benchmark bonds, soared to more than 200 basis points.
But the spread has since come down to below 160 basis points as the government announced huge spending cuts and labour market reforms aimed at creating jobs. Salgado said the ceiling for government spending in next year's budget was 122.256 billion euros, down 7.7 percent from 2010. She also said Spain could meet its deficit targets at current tax levels, appearing to rule out further tax hikes.
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