Spanish state shivers as austerity cuts bite

Spain's new conservative government yesterday approved a sweeping package of belt-tightening measures and privatisations that it says are necessary to keep the country on course for European monetary union in 1999.

It slimmed down the machinery of government by killing off some 80 departments and agencies, and pruning top administrative posts by a third.

The Vice-President and Economy Minister, Rodrigo Rato, nicknamed "Scissorhand", announced spending cuts of 200bn pesetas (pounds 1bn). "We are imposing a rigorous policy of budget discipline," Mr Rato said after yesterday's cabinet meeting. "The government position is that Spain will and must meet the [European Union] convergence criteria."

The urbane Mr Rato emerged as the steely nerved hero of two months of negotiations with the Catalan nationalists in pursuit of a ruling pact. Austerity measures form a cornerstone of the deal and - pour encourager les autres - Mr Rato has slashed his own ministerial staff by half. Details of where the cuts will fall are to be worked out over coming weeks and presented to parliament.

Mr Rato's measures sent an icy blast through the Spanish state bureaucracy, which the ruling Popular Party considers to have become unnecessarily bloated throughout 13 years of Socialist government, during which employees in every other walk of life have grown accustomed to the rigours of "reconversion". Mr Rato, seeking to calm fears that already flagging economic growth could peter out under the impact of this latest blow, promised to introduce measures to encourage private investment.

The Industry Minister, Josep Pique, a Catalan entrepreneur, plans to accelerate the privatisation process launched by the previous government and to hive off as soon as possible all public companies under his control. They include the Iberia and Aviaco airlines, Repsol petroleum company and the telecommunications group Telefonica. Mr Pique said these companies were a huge drain on state finances and there was no justification for maintaining them in the public sector.

To keep an eagle eye on cost-cutting, the government yesterday created a Budget Office answerable to the Prime Minister headed by Jose Barea, 73, an economics professor.