Spain Halves Deficit With Painful Austerity Cuts

Spain's deficit is down sharply thanks to an unpopular cocktail of tax hikes and austerity cuts - good news for a government fighting to ward off fears it might need a bailout like the one that saved Greece from bankruptcy, The Associated Press reported. Still, with a fifth of the work force out of a job and businesses struggling to survive, the spending cuts that are helping the budget are likely to keep any economic recovery subdued. The stock market's IBEX 35 index closed 3.51 percent up at the close of trading Wednesday. But this is a one-time boost widely attributed to Spaniards rushing to buy big-ticket items like refrigerators and washing machines before those tax rates rose on July 1. On the spending side, the government saved money by eliminating a €400 ($500) tax rebate it granted to most taxpayers in 2008 and cutting civil servants' wages by 5 percent as part of an austerity plan approved in May. But other numbers show the uphill battle Socialist Prime Minister Jose Luis Rodriguez Zapatero still faces as he tries to resurrect an economy that collapsed two years ago after a real estate bubble burst and is now saddled with a 20 percent jobless rate: tax revenue from businesses is down 9.8 percent in the first seven months of the year. Consumers, meanwhile, remain cautious - car sales dropped 24 percent in August compared from a year earlier to reach their lowest level since 1989, two associations of manufacturers and dealers reported Wednesday. The government had been providing cash aid to boost sales as part of a stimulus package but that money ran out in July. Read more.