Pressure mounts on Spain's Zapatero over economy

Thu Feb 4, 2010 12:06pm EST

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By Jason Webb

MADRID, Feb 4 (Reuters) - Spanish unions said on Thursday they plan protests and the opposition may hold a vote of no confidence as criticism mounted of Prime Minister Jose Luis Rodriguez Zapatero's efforts to overhaul state finances.

Doubts about Spain's deficit pushed Spanish bond prices down and sent stocks .IBEX tumbling nearly 6 percent on a day when Economy Minister Elena Salgado stressed that the country was not a risk to the future of the euro and some of the allies Zapatero needs to enact austerity plans turned away from him. [ID:nLDE6132CU]

Debt markets worry that the government will struggle to cut spending at a time when unemployment is nearing 20 percent.

The largest union confederation, Comisiones Obreras (CCOO), said it would organise protest marches during the last week of February against the government's proposal to raise the retirement age to 67 from 65. "If Zapatero wants to perform harikiri and not change course, that's his decision," CCOOleader Ignacio Fernandez Toxo told a media conference, just a day before the government hopes to gather union support for proposals to streamline labour markets.

The CCOO has also called the government a "bunch of amateurs" following a series of public relations blunders related to a 50 billion euro austerity plan. [ID:nLDE6122Q0]

CRITICISM AMONG SOCIALISTS

Criticism has even arisen within the Socialist Party, with the head of the regional government of Castilla-La Mancha calling for Zapatero to make changes to his cabinet.

Meanwhile, the deputy leader of the conservative opposition Popular Party also raised the heat on Zapatero by saying that it could seek a vote of no confidence in parliament, which, if successful, would topple the government.

Although Maria Dolores de Cospedal admitted the Popular Party currently lacked the votes in parliament for such a move, her remarks augured ill for hopes of broad-based support for government crisis plans in the legislature.

The Popular Party's opinion poll lead over the Socialists widened to 3.8 percentage points in January, up slightly from November, according to the Centro de Investigaciones Sociologicas. National elections are not due until 2012.

Polling figures were not the only grim reading for the Zapatero government.

The spread of Spanish 10-year government bonds ES10YT=RR over benchmark German bunds rose to around 95 basis points on Thursday, amid a general retreat from riskier assets in global markets, up from the mid-80s the day before.

The economy minister denied Spain was a risk to the euro and criticised foreign analysts such as Nobel Prize-winning economist Paul Krugman, who this week said Spain was the euro zone's "biggest trouble spot", and foreign media for being too harsh on Spain.

"Maybe there is a lack of comprehension about what the euro means for our economies," Salgado said on Spanish radio.

The government says it will cut spending by 50 billion euros as it tries to reduce a budget deficit of 11.4 percent of gross domestic product in 2009 to the EU limit of 3 percent by 2013.

"The current fundamentals of the Spanish economy only make good reading if one is into horror stories," wrote 4Cast analyst Jose Garcia Zarate, adding that Spain, more than Portugal or even Greece, was increasingly being singled out as the "make or break test for the Eurozone", due to the size of its economy. (Additional reporting by Feliciano Tisera; Editing by Louise Ireland)

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