Eurozone crisis: Spain announces budget cuts amid protests

Police fire rubber bullets after thousands take to the streets in Madrid to protests against government measures

Spain's government has announced sweeping new austerity measures, amid clashes between protesters and police.

Prime Minister Mariano Rajoy said sales tax would rise from 18% to 21%, and local authorities would have their budgets slashed.

He is aiming to save 65bn euros (£51bn; $80bn) as part of a deal with eurozone leaders to help rescue Spain's banks.

The move coincided with a miners' rally in Madrid, where police fired rubber bullets at crowds of protesters.

Thousands of people joined in the rally to support the miners, who have been campaigning for weeks against major cuts to industry subsidies.

Witnesses said protesters out to support the miners threw fireworks, bottles and stones at riot police.

The officers fired rubber bullets and charged at the demonstrators.

Rajoy's austerity plans

  • VAT increase from 18% to 21%
  • Rise in reduced VAT rate on public transport, hotels and processed foods from 8% to 10%
  • Basic goods VAT on bread, medicine and books stays at 4%
  • Pay cuts for public sector workers, removing Christmas-time payment
  • Unemployment benefit cut from sixth month out of work
  • 30% cut in councillors in some areas
  • Subsidies to be cut by 20% in 2013 for political parties and unions

Five people were arrested and three people suffered minor injuries, according to the AFP news agency.

'Circumstances change'

The prime minister, interrupted several times by opposition MPs, told parliament that the changes he was announcing had to be adopted without delay.

Eurozone finance ministers have agreed to provide 30bn euros (£24bn) for Spain's troubled banks by the end of the month and to give Madrid an extra year - until 2014 - to hit its budget targets.

Mr Rajoy acknowledged that the VAT rise contradicted a campaign pledge made before his Popular Party came to power. As recently as January he said there was no plan to raise the tax.

"I said I would lower taxes and I am actually raising them. Circumstances change and I have to adapt to them."

The package of measures would cut the budget by 65bn euros over two-and-a-half years, he said.

"The excesses of the past are being paid for right now," he said, adding that Spaniards had never before experienced such a recession.

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The measures will test further the patience of the Spanish people - pledges only recently made have been broken”

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Without a cut in Spain's budget deficit, public services would be put at risk, he said. Savings of 3.5bn euros will be made to government administration budgets, with local authorities banned from offering services they cannot afford and the number of councillors reduced by 30% in some areas.

The door had been opened to a new EU model, Mr Rajoy said, and the summit agreements had committed everyone equally.

Spain's unemployment is running at more than 24% and analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.

"What animates us is the five million people out of work," Mr Rajoy told parliament.

The European Commission praised the Spanish government's "determination" and swift action.

"It's an important step to ensure that the fiscal targets for this year can be met," spokesman Simon O'Connor told reporters.

Mass rally

Thousands of miners marched through the centre of Madrid towards the industry ministry to protest against plans to slash coal industry subsidies from 301m euros last year to 111m euros this year.

Miners march along street in Madrid (10 July) Crowds lined the streets of Madrid to welcome the coal miners

"It's just cuts and more cuts," David Menendez, a miner from Asturias, told the Associated Press news agency. He and his colleagues had been further angered by the latest round of tax increases and spending cuts.

Many of the workers had walked hundreds of miles since 22 June from northern Spain, where demonstrations outside coal mines have resulted in clashes with police.

Unions say the cuts threaten 30,000 jobs and could destroy their industry.

The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.

Spain's 30bn-euro bank bailout will be the first instalment of a package worth up to 100bn euros agreed in June.

Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.

Spain in numbers
  • Spain in numbers
  • Spain is the eurozone's 4th largest economy
  • One in four people is unemployed
  • House prices have dropped by 25% since 2008
  • The banking sector is highly indebted. Bankia, the country's
    fourth largest bank, recently asked for a €19bn bailout
  • By 2010, one in four Spaniards were at risk of poverty
    or social exclusion
Unemployment chart
  • 24.3%
  • Spain has the highest unemployment rate
    in the EU. It is even higher than Greece.
  • 51.5%
  • The majority of young
    people are unemployed
Unemployment map
  • Unemployment across Europe, 2011
  • In 2006, Spanish unemployment, at 8.5%, had been close to the EU average.
    Five years later, in 2011, it was twice as high at 21.7%.
Icons
  • The collapsing property market and recession have
    forced some of Spain's banks to seek government help.
  • Banks have 155.84bn euros of loans at risk of not being
    repaid. That is 9% of all loans.
  • Small, weak banks have been saved through mergers:
    the number of banks has shrunk from 45 to 11.
  • The government has injected 60bn euros into banks. They
    will also get up to 100bn euros in loans from the eurozone.
Government bond-yield chart
  • Regional governments, hit by a mixture of the property bust, recession and overspending, are also struggling. Some of them are having to ask the central government for help.

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