Spain imposes tax hikes and spending cuts
Source: Agencies |
July 12, 2012, Thursday
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Print Edition
Print Edition
SPAIN'S government imposed further austerity on the country yesterday as it unveiled sales tax hikes and spending cuts aimed at shaving 65 billion euros (US$79.85 billion) off the state budget over the next two and a half years.
A day after winning European Union approval for a huge bank bailout and breathing space on its deficit program, Prime Minister Mariano Rajoy warned Parliament that Spain's future was at stake as it grapples with recession, a bloated deficit and investor wariness of its sovereign debt.
"We are living in a crucial moment which will determine our future and that of our families, that of our youths, of our welfare state," said Rajoy.
"This is the reality. There is no other and we have to get out of this hole and we have to do it as soon as possible and there is no room for fantasies or off-the cuff improvisations because there is no choice."
The spending cuts, designed to slash 65 billion euros of state budgets by 2015, include a wage reduction for civil servants and members of the national parliament and a new wave of closures at state-owned companies. Spain will also speed up a gradual increase in the retirement age from 65 to 67.
The measures are in exchange for the bank bailout of up to 100 billion euros granted to Spain by the other 16 countries that use the euro. Finance ministers approved the bailout program at meetings in Brussels this week and as much as 30 billion euros could flow to Spain's banks by the end of the month. The country's banks are saddled with billions of euros in toxic loans and assets following the collapse of the country's real estate market.
The goal is to strengthen the banks' balance sheets against further economic shocks so they can start lending to businesses and families. The full amount Spain will seek is not yet known.
Europe's finance ministers also this week extended Spain's deadline for achieving a budget deficit of less than 3 percent of its annual economic output, until 2014. The size of Spain's economy in 2011 is estimated to have been US$1.5 trillion.
Spain - the fourth-largest economy in the eurozone - has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry.
There are fears that should Spain need a bailout of its own, the eurozone would struggle to finance it, pushing the region further into recession.
A day after winning European Union approval for a huge bank bailout and breathing space on its deficit program, Prime Minister Mariano Rajoy warned Parliament that Spain's future was at stake as it grapples with recession, a bloated deficit and investor wariness of its sovereign debt.
"We are living in a crucial moment which will determine our future and that of our families, that of our youths, of our welfare state," said Rajoy.
"This is the reality. There is no other and we have to get out of this hole and we have to do it as soon as possible and there is no room for fantasies or off-the cuff improvisations because there is no choice."
The spending cuts, designed to slash 65 billion euros of state budgets by 2015, include a wage reduction for civil servants and members of the national parliament and a new wave of closures at state-owned companies. Spain will also speed up a gradual increase in the retirement age from 65 to 67.
The measures are in exchange for the bank bailout of up to 100 billion euros granted to Spain by the other 16 countries that use the euro. Finance ministers approved the bailout program at meetings in Brussels this week and as much as 30 billion euros could flow to Spain's banks by the end of the month. The country's banks are saddled with billions of euros in toxic loans and assets following the collapse of the country's real estate market.
The goal is to strengthen the banks' balance sheets against further economic shocks so they can start lending to businesses and families. The full amount Spain will seek is not yet known.
Europe's finance ministers also this week extended Spain's deadline for achieving a budget deficit of less than 3 percent of its annual economic output, until 2014. The size of Spain's economy in 2011 is estimated to have been US$1.5 trillion.
Spain - the fourth-largest economy in the eurozone - has been struggling to keep a lid on its government deficit in the midst of a recession while trying to support its troubled banking industry.
There are fears that should Spain need a bailout of its own, the eurozone would struggle to finance it, pushing the region further into recession.
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