Spain unveiled new austerity measures today designed to cut â‚¬65 billion from the public deficit by 2014 as violence broke out on the streets of Madrid.
Prime minister Mariano Rajoy, who yielded to EU pressure to try to avoid a full state bailout, announced a 3 percentage point increase in the main rate of VAT on goods and services to 21 per cent and cuts in unemployment benefits and civil service pay. His speech was interrupted by jeers and boos from the opposition.
“These measures are not pleasant, but they are necessary. Our public spending exceeds our income by tens of billions of euros,” he told parliament.
Analysts said the draconian savings plan, tearing up several of Mr Rajoy’s campaign promises, showed Madrid was already under de facto supervision from Brussels even though it has not requested a sovereign bailout and retains access to bond markets.
Some said the tax increases could exacerbate the recession. Spain won softer deficit targets from its European Union partners this week and also negotiated rescue aid of up to â‚¬100 billion from the euro zone’s bailout fund for its crippled banking sector.
In line with recommendations from the European Commission, Mr Rajoy announced new indirect taxes on energy, plans to privatise ports, airports and rail assets, and a reversal of property tax breaks that his Popular Party had restored last December.
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