Real wages to fall 5% in Spain as unprecedented deficit cuts loom

Wages will fall 5% in real terms in Spain this year thanks a freeze in the minimum wage and price increases, according to Comisiones Obreras trade union confederation.

Suggestions that wages were too high were not backed by the evidence as seven million workers earned “significantly less” than 1000 euros a month, said General Secretary Ignacio Fernández Toxo in comments reported by Europa Press.

Toxo slammed plans to raise wages below the rate of inflation, describing them as “unfair” and “an error” and added that proposals to reduce compensation for dismissal, part of a programme of labour “reforms”, were non-negotiable.

Noting that credit wasn’t flowing, he instead called for reforms to the banking system and for banks to fix “part of the disaster they have caused.”

New Prime Minister Mariano Rajoy is wedded to protecting the banks, while reserving austerity for the rest. He has just announced tax rises and spending cuts that will hurt the majority while protecting the rich, corporations and finance sector.

His Popular Party government is promising to stick to a 2012 target of cutting the deficit to 4.4 percent of GDP. However, in a note today credit rating agency Moody’s said the Eurozone’s fourth-largest economy faces an “unprecedented” challenge to meet deficit reduction targets with the economy expected to contract this year by up to 1%, AFP reported.

“Achieving such a massive fiscal adjustment amid slowing economic growth risks exacerbating the negative economic outlook,” Moody’s said.

“Under our assumptions the required adjustment is around 40 billion euros.” That compared to a deficit reduction of about 28 billion euros in 2010 and 2011 combined, Moody’s said.