Spain PM announces 65bn euro austerity package

Spain's Prime Minister Mariano Rajoy announced today a 65 billion euro (USD 80 billion) austerity package to avert financial collapse as angry miners rallied against subsidy cuts.

Rajoy, interrupted by howls from opposition members as he outlined the cuts, performed a U turn by ramping up value added sales tax having promised he would not raise it, and took an axe to state expenditure.

"These are not pleasant measures but they are necessary," said the bearded 57-year-old leader of the conservative Popular Party.

Spain's premier said new spending cuts and other measures including notably a rise in value added tax would bring in 65 billion euros 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 bulging public deficit back to agreed limits. The interest rate which Spain has to pay to borrow for 10 years eased fractionally as the measures were announced but remained at a crippling level of 6.743% from 6.773% yesterday.

Among the new measures announced by Rajoy, VAT goes up to 21% from 18%, and the reduced rate on some products such as food goes up to 10% from 8%. A special four-percent rate on basic needs such as bread is untouched.

 Public administration is to be reformed to save 3.5 billion euros, including a drastic cut in the number of publically owned enterprises and a 30% cut in the number of local councillors.

In Brussels, eurozone ministers agreed the previous day to provide a first slice of 30 billion euros for Spain's banks this month, with 100 billion euros potentially available in all.

The 17 nation single currency bloc agreed, also, to extend a deadline for Spain to cut its public deficit to the European Union's limit of 3.0% of gross domestic product by one year to 2014.