Spain unions to battle pay cuts for civil servants

Spanish unions on Thursday promised to fight austerity moves in the courts after the Socialist government introduced a cut in public sector wages through a royal decree, bypassing parliament.

The UGT union, which was already planning a public sector strike on June 8, said it would contest the legality of such cuts at the centre of plans for budget reductions of 15 billion euros ($18.62 billion) announced last week.

"We are without doubt going to challenge this royal decree," Julio Lacuerda, a representative of Spain's second largest union UGT, told a news conference after meeting government officials to receive details of the pay reductions.

"This is a complete mockery of our legal right to bargain," added Enrique Foussoul of Comisiones Obreras (CCOO), Spain's largest union.

The government approved the austerity plan at its weekly cabinet meeting and an average 5 percent wage decrease this year for civil servants will take effect on June 1.

"This package of measures aims to accelerate the reduction of the public deficit," Deputy Prime Minister Maria Teresa Fernandez de la Vega told journalists after the cabinet meeting.

"My impression is that the unions want to make noise without calling a general strike, because a general strike would hurt the Socialist government deeply," said Pedro Schwartz, economics professor at the San Pablo University in Madrid.

Legal experts doubted the unions would be able to successfully challenge the wage cuts, saying they would have to prove they were unconstitutional -- a tall order.

Spain's government announced more spending cuts last week to accelerate a reduction in its budget deficit after the European Union and International Monetary Fund approved $1 trillion in emergency funds for weak euro economies.

Debt Fears

Traders have fretted that Spain could enter a debt spiral like Greece as it grapples with a budget deficit that swelled to 11.2 percent of gross domestic product last year. It has promised to cut the deficit to 3 percent of GDP by 2013.

Last week's measures would aim to speed up the reductions in the budget deficit to 9.3 percent of GDP this year and then to 6 percent in 2011.

Spain on Thursday evening revised its forecast for its public deficit in 2012 down to 4.4 percent of GDP from a previous estimate of 5.3 percent, according to a government document.

Economy Minister Elena Salgado also revised down growth forecasts for 2011 to 1.3 percent from 1.8 percent.

The economy has been mired in its worst recession in decades and Economy Minister Elena Salgado said the measures would impact growth. The government lowered its growth forecast for 2011 to 1.3 percent from 1.8 percent previously but stuck by its forecast of a 0.3 percent contraction this year.

Salgado also the government would introduce a tax on wealthy individuals at some stage but there were no concrete plans.

"At the right moment we will present a proposal so that there is solidarity by those that have most," Salgado said, when asked about a special tax for the rich, adding such a measure would be temporary.

Several government officials have said in recent days that a tax on the rich is under consideration.

Separately on Thursday, Spain sold 3.52 billion euros in 10-year bonds in what was seen as a well-received bond auction.

"Bidding was very b, and 3.52 billion euros is above the target issuance amount," said Peter Chatwell, a strategist at Credit Agricole in London. "Clearly some real money investors have pounced on this, and I would now expect this to further improve sentiment for Spanish paper."

The CCOO and UGT have called a public sector workers' walkout against the cuts for June 8 and not ruled out further action, including a general strike.

The unions and government are also heading for confrontation over labour market reform, which the government wants to complete by the end of May.

[Source: By Carlos Ruano, Reuters, Madrid, 20May10]

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