Spanish Prime Minister Mariano Rajoy has announced a €65bn austerity package to avert financial collapse as angry miners rallied against subsidy cuts.
Mr Rajoy, who was interrupted by opposition members as he outlined the cuts, performed a U-turn by increasing VAT, having promised he would not raise it, and cutting state expenditure.
"These are not pleasant measures but they are necessary," said the 57-year-old leader of the conservative Popular Party.
Mr Rajoy reminded parliament that Spain is going through one of its worst recessions in history, with unemployment at 24.4%, and economic activity set to decline by 1.7% this year.
He said new spending cuts and the other measures would bring in €65bn by the end of 2014 to help trim the annual deficit.
The European Union had demanded a VAT rise along with a series of other tough measures as it gave Spain an extra year to bring its public deficit back to agreed limits.
The interest rate that Spain has to pay to borrow for ten years eased fractionally as the measures were announced, but it remained at a high level of 6.74%.
Key measures
- VAT goes up to 21% from 18% and the reduced rate on some products, such as food, goes up to 10% from 8%.
- Public administration is to be reformed to save €3.5bn, including a cut in the number of publically-owned enterprises and a 30% cut in the number of local councillors.
- For the newly unemployed, benefits will be cut after six months from 70% of basic salary to 50%. Previously, the benefit had been reduced after six months to 60% of salary.
- Certain bonuses paid to top civil servants will be cut, and the Christmas bonuses for top public officials will be eliminated.
Street protests are already mounting over austerity measures in a country with an unemployment rate of 24.4%.
Coal miners, hundreds of whom marched from their northern pits to Madrid, joined a major demonstration in the capital today against subsidy cuts that they say will threaten thousands of jobs.
Violent clashes have broken out in more than a month of protests over the government’s decision to cut coal industry subsidies this year to €111m from €301m last year.
Unions say the cuts will destroy coal mining, which relies on state aid to compete with cheaper imports, and threaten the jobs of around 8,000 coal miners and up to 30,000 other people indirectly employed by the sector.
