MADRID—Spain’s parliament on Thursday approved by a single vote the government’s request for €15 billion ($18.29 billion) in additional budget cuts this year and next, signaling the political toll the country’s deep economic and fiscal crisis has taken on Prime Minister José Luis Rodriguez Zapatero’s minority government.
Mr. Zapatero has come under intense international pressure to speed up efforts to cut the country’s yawning budget deficit and bolster investor confidence.
The International Monetary Fund earlier this week issued an unusually blunt warning to Spain, saying it needs a “radical overhaul” of its labor laws, a “bold” reform of its government pension system and accelerated consolidation of its banks to stave off the kind of economic problems that have undermined Greece.
The country’s budget deficit hit 11.2% of gross domestic product in 2009, more than three times the 3% limit for EU countries.
The government said the new budget measures will allow it to cut its deficit to 9.3% of GDP this year and to 6.5% in 2011.
The moves have chilled the Socialist-led government’s once-warm relations with the country’s unions, which have threatened a general strike.
Spain is grappling with the collapse of a decade-long housing-market boom that pushed its economy into recession and sent its public-sector accounts into the red.
Its weak budgetary position left it vulnerable to the spread of Europe’s Greece-centered financial crisis.
A strong selloff of Spain’s assets, as well as those of other fiscally frail countries, prompted EU leaders to put in place a giant financial backstop for the region earlier this month.
Concerns over Spanish creditworthiness were heightened when the country’s central bank moved Saturday to take over Roman Catholic Church-controlled savings bank CajaSur, in a big step forward in its efforts to clean up the country’s ailing mutually owned banks.
The cleanup of the savings banks is one of Spain’s main challenges, on top of 20% unemployment and a widening budget deficit.
In a proposal published late Wednesday, the central bank said it wants Spanish lenders to set aside provisions for the full value of each bad loan one year after it has soured.
Banks currently have to provision over a period of between two and six years, depending on the quality of the underlying collateral.
It also raised provisioning requirements for real-estate assets lenders hold on their balance sheets.
Banks will now be consulted about the proposal.
Analysts said the move may provide much-needed transparency to a sector that is under intense scrutiny from international investors who are worried about fallout from the continuing restructuring of fragile savings banks.
Bankers also suggested that the move may push forward merger activity among these lenders, many of which were unprofitable in the last quarter of 2009.
“These changes of regulation are, if implemented, one of the most important points related to Spanish banks we have seen in years,” said Santiago Lopez Diaz, a bank analyst at Credit Suisse. “The measures could be the last straw for several institutions in terms of profitability, which is going to accelerate consolidation in the sector.”
