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Europe — Public spending cuts all round

25 May 2010

Governments across the European Union (EU) are tightening their countries' belts in order to avoid being downgraded to Greece's level of credibility to the financial markets.

Britain's new coalition government yesterday announced plans to save 6.2 billion Pounds (7.6 billion Euro) in the current financial year. The cuts include a freeze on civil servant recruitment and clamping downs in areas of IT and consulting, the scrapping of projects and the scaling down of non-governmental bodies.

The new Finance Minister (Chancellor of the Exchequer), George Osborne, wants to eliminate a large part of Britain's 156 billion Pounds budget deficit within the five-year term of the new parliament.

Chancellor Osborne's Labour predecessor Alistair Darling, said "it is clear that these cuts will seriously affect support for business, mean less jobs for young people and hit students."

It was unclear whether the announced recruitment freeze would impose any limits on the use of temporary staff although given demands on budgets it would be surprising if it escaped the cuts.

Tom Hadley, Director of External Relations at the UK's Recruitment and Employment Confederation (REC), commented "The reality is that there are real benefits in being able ‘flex’ staffing requirements to meet peaks in demand and avoid undue pressure on the permanent workforce."

"The announcement did include a commitment to cull the use of consultants but there will still be a need to bring in highly skilled experts to drive specific projects. This is where interim managers or other temporary staff can play a leading and cost-effective role."

Hadley concluded "there will be huge changes in the way that public services are delivered. In the mid and longer term, these will require a greater need for flexible staffing rather than less. Looking ahead, we will need to monitor the impact that public sector cuts could have the UK's recovering but fragile jobs market."

The Financial Times reports that Germany and Italy are set to follow Britain's lead. Germany is expected to reduce spending by -10 billion Euro per year until 2016.
The Italian Cabinet is discussing budget cuts of -25 billion Euro by 2012. Italy's deficit is one of the lowest in the EU but public debt as a whole of 115% percent of GDP is amongst the highest in the industrialised world.

Spain has already announced measures to fight its deficit and is now blocking regional officials from long-term credit for certain projects.

In a note published on Monday, Deutsch Bank's team of economists said that the British government's austerity programmes have led to a sharp decline in interest rate expectations going forward. The economists added that "in the Euro area, we have already put back our view of monetary tightening to the first quarter of 2011."
To see a pie chart on reductions to departmental budgets in the UK please click here



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