As the Spanish government finishes negotiating the terms of its bank bailout, Prime Minister Mariano Rajoy announced a new round of tax increases and spending cuts meant to satisfy the European powers who are rescuing them. The tough new austerity plan is the fourth of Rajoy's short tenure and one that most economists say will cripple the nation's struggling economy even more. However, it's also one that apparently must go through for the bailout to happen and for the markets to respond positively, which they have so far.
One of the conditions agreed to in the discussion with European finance ministers is that Spain must reduce its debt to around 6 percent its GDP. In exchange, the other euro zone nations will begin sending about €30 billion to Spanish banks in need of capital. In order to reduce that debt, however, Rajoy's plan calls for a 3 percent rise in the country's Value Added Tax, the elimination of property tax breaks, cuts in benefits and bonuses for civil servants, the privatization of some airports and state railways, and big future cuts in unemployment benefits. Even with the new cuts, Spain may still have trouble meeting its goals.
Rajoy has only been in office seven months, but has already broken most of his financial campaign promises, including vows to cut taxes and not raise them. Rajoy said the measures "aren’t agreeable but they are essential. We are in an extraordinarily serious situation." Spain's unemployment rate is at an unthinkable 25 percent and growth has been non-existent over the last year. This latest move will only further upset citizens who feel they are paying for the mistakes for reckless bankers. (Sound familiar?) Spain's coal miners are already striking today over huge cuts in subsidies that they say will cost the industry hundreds of jobs.