Thursday, July 12, 2012

Draconian measures

Remember that Mariano Rajoy told us that there would be no strings attached to the 100 million Euro bailout of the banks – well that was not true. For one thing, the banking sector will be under constant scrutiny by the EU – a bit like schools in Britain under “special measures” following a bad OFSTED report.

We would have expected banks to suffer but then, in his speech yesterday, Mr Rajoy said VAT will rise from 18pc to 21pc – though a 4pc rate will remain for food – breaching one of his key election pledges. “These are not pleasant measures. I said I would cut taxes and I am raising them. Circumstances have changed,” he said.

“Our public spending exceeds our income by tens of billions of Euros. We have to get out of this mess and we have to do it as soon as possible. This is the reality that we face,”

Unemployment benefits will be cut. Interest on mortgages will no longer be tax deductable. Public employees will lose their Christmas bonus – a de facto pay cut – and will have to work longer, prompting a general strike threat from the country’s unions.

United Left leader Cayo Lara said Spain was now under “full-blown” occupation, accusing the government of “throwing petrol on to the country’s streets”.

The cuts come at a grim time, as Mr Rajoy himself admitted. “Never before has the Spanish economy suffered two back-to-back recessions of such severity. In the last year, unemployment has risen by half a million people and 32,094 businesses have closed.”

There is no doubt that these measures will cause tension and social unrest. Asturian miners are already clashing with the police in Madrid, that may only be the start. 

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