The Spanish government announced a new list of “austerity” measures today (Telegraph, UK – see from 8:11 to 9:30 AM). They include the usual (a Value Added Tax increase; public sector pay cuts), plus a reduction in unemployment benefits after six months (not bad, although numbingly small).
I can’t speak for the state of Spain’s public sector pay per se, but the focus on salaries and taxes is part of a larger problem inherent in what Spain (and the rest of southern Europe) is doing. They’re treating the symptoms rather than the disease.
In order for these nations to fix their public balance sheets long-term (i.e., without crippling their economies in the process), government can’t just borrow less, or even spend less; those are just the beneficial by-products of the solution. Government must do less: less regulation (and fewer regulators) strangling the private sector, and fewer programs crowding out for-profit and non-profit firms.
In short, what European nations need is smaller government, not big government on the cheap. Sadly, Spain’s leaders still haven’t figured that out.
Cross-posted to Virginia Virtucon