Protests meet €65bn of extra austerity in Spain

Tim Wallace
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THOUSANDS of protesting miners clashed with police in Madrid yesterday as Prime Minister Mariano Rajoy announced a fresh round of spending cuts and tax rises, designed to shore up the government’s troubled financial position.

Meanwhile the government gave more detail on its planned bank bailouts, reassuring investors that loans from the European Stability Mechanism will not be senior to private loans and outlining the sector’s return to independence.

Rajoy announced another €65bn (£51.3bn) of austerity measures, including a three percentage point hike in VAT, taking the sales tax to 21 per cent, as well as cuts to unemployment benefits and another round of cuts to local government funds.

The measures overhaul the budget plan which include €48bn of savings over the year, as they did not go far enough to close the government’s sizeable budget deficit.

The deficit hit 8.9 per cent of GDP last year and the European Commission has set the government targets of 6.3 per cent for 2012, 4.5 per cent for 2013 and 2.8 per cent for 2014.

Markets welcomed the new plans, sending the government’s 10-year borrowing costs down 0.234 percentage points, though they remain dangerously high at 6.577 per cent.

Meanwhile the government published a memorandum of understanding which gave more detail on the planned €100bn bank bailout.

The first tranche of the bailout is to be distributed this month, with a full audit of banks to be complete by September and banks which are not deemed to be viable resolved.

The bailout is likely to represent a transfer of sovereignty from Spain to the EU, with control passing from the government to the European Commission, although the exact split of powers is not yet certain.