US embassy cable - 04MADRID3106

UNCLAS MADRID 003106 
 
SIPDIS 
 
TREASURY FOR TRACI PHILLIPS 
 
E.O. 12958: N/A 
TAGS: ECON, ELAB, EFIN, SP 
SUBJECT: SPAIN REDUCES CIVIL SERVANT WAGE INCREASE 
 
 
1. SUMMARY. The Spanish press reported in late July that the 
new Socialist government is proposing a 3.2% increase in 
civil servant wages, rather than the 3.5% union goal, in the 
2005 National Budget.  This excludes the 0.3% allocated for 
the recovery of purchasing power lost in the last eight 
years. END SUMMARY. 
 
2. The new Socialist government is proposing a 3.2% increase 
in civil servant wages in the 2005 National Budget.  In late 
July, the GOS initial plan of 3.5%, proposed by the Ministry 
of Public Administration, was revised downwards by the 
Ministry of Economy and Finance.  The 3.5% proposal consisted 
of 2% for predicted inflation, 0.5% for payroll increases to 
support the civil servant pension fund, 0.7% for productivity 
payments, and 0.3% for the recuperation of purchasing power 
lost in the last eight years.  The 3.2% proposal omits the 
purchasing power share. 
 
3. The civil servant wage increase would apply to 2.35 
million public employees, with priority given to the police 
and Civil Guard to improve their labor conditions. 
 
4. The Spanish press also reports that labor unions have 
rejected the 3.2% measure citing the importance of 
recuperating purchasing power.  The unions quickly reminded 
the government that this plan was one of the electoral 
promises made by the Socialist Party, and they have called 
upon the government to initiate a process of negotiation to 
take place in September. 
 
5. COMMENT.  When the Minister of Economy and Finance, Pedro 
Solbes, was appointed, the Spanish business community was 
relieved, anticipating that he would be a forceful advocate 
of fiscal discipline.  With this reduction in wage increases, 
his ministry has trumped the government's aspirations to 
quickly meet the demands of civil servants, indicating that 
Minister Solbes will continue to play budgetary watchdog on 
the government.  Nevertheless, if the Socialist government 
stands by its proposal of 3.2%, it will not distinguish 
itself from the previous administration, which recently fixed 
wage increases between 3.2% and 3.3%. END COMMENT. 
MANZANARES