Tuesday, June 8, 2010

Stocks: Massive Effects of Spending Cut Packages in Europe Will Severely Affect Earnings

Spanish newspaper El Pais discussed the massive effects of the various spending cut packages announced by European countries. Stock market bulls should note that these cuts will severely reduce European GDP, thus eliminating or greatly difficulting earnings growth.

Greece: 16% reduction in the wages of the public service, through the curtailment of supplements and extraordinary payments.

Spain: 5% cut in the gains of all servants, and specific reductions in some sectors, generating savings of 4 billion euros by 2011

France: freezing government spending over the next three years. For this, the government will fail to cover half of vacant public servants jobs in 2010. This year alone, 68,000 people are expected to retire

Italy: cut from 5% to 10% in the remuneration of ministers, parliamentarians, the senior civil servants, 10% reduction in expenditure salaries in ministries and eliminating some advisory contracts

UK: reducing the pay of ministers in 5% and freeze on hiring new employees.

Portugal: freezing the salaries of civil servants and cut 5% of the remuneration of political office. The government will also avoid hiring in the public sector.

Ireland: 15% drop in wages for civil servants for the next two years

Germany: the country would save 10 billion euros per year in the public service, but gave no details. The Financial Times, 15,000 government jobs to be abolished.

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