Spanish Prime Minister Mariano Rajoy announced Wednesday the fourth austerity package of his seven-month-old administration, a move aimed at achieving 65 billion euros ($80 billion) in savings to meet a European Union-mandated budget deficit target.
The announcement came in the wake of renewed pressure on Spain's sovereign bond yields and just 24 hours after the euro-zone countries gave the green light to an agreement to loan the Iberian nation up to 100 billion euros ($122.5 billion) to shore up its ailing banking sector.
"We have to get out of this hole and we need to do it as soon as possible," Rajoy said in presenting the new measures, which include an increase in the value-added tax, a reduction in unemployment benefits and the elimination of public employees' Christmas bonus in 2012.
Rajoy acknowledged that some of the measures - such as the rise in the VAT, or sales tax, which he and his conservative Popular Party had previously opposed - would be a tough pill to swallow.
The premier said in his address to the lower house of Parliament that he regretted having to adopt the measures but that there was no alternative, while opposition lawmakers expressed their displeasure with the new round of austerity during the hours-long debate.
"I said I would lower taxes and I'm raising them. I haven't had a change in philosophy, nor do I renounce lowering them as soon as possible, but circumstances have changed," he said.
The new measures are part of Spain's obligations to the European Union in exchange for the bank bailout and additional time to bring its national budget deficit in line with the bloc's mandates, Rajoy said, adding they also are justified because of the country's "gloomy" economic prospects for 2013.
"We're going through the second most serious recession in our history, he said, noting that Spain's economy is projected to contract by nearly 2 percent this year.
The measures due to take effect immediately include an increase in the value-added tax from 18 percent to 21 percent, although the sales tax for basic goods such as bread and medicine will remain at 4 percent.
Other moves involve reducing unemployment pay starting in the sixth month of joblessness, although those out of work will remain eligible for benefits over a two-year period.
Rajoy referred during his address to the serious unemployment crisis in Spain, where the jobless rate exceeds 50 percent among young people and 24.6 percent overall.
He also said Spain faces an urgent situation in which "we need them to lend us money to pay even things like unemployment benefits, the salaries of government employees, health, education."
And because Spain's borrowing costs are very high - more than 6 percent for its benchmark 10-year bond in debt auctions - "we're trapped in an unsustainable, vicious cycle that we need to escape from as quickly as possible."
He therefore announced a score of fiscal measures, including suspending the Christmas bonus for government employees, reducing the number of town councilors, cutting government subsidies to political parties and unions, suspending allowances to businesses for hiring and increasing the VAT.
The goal is to bring the deficit down to less than 3 percent of gross domestic product in 2014, from 8.9 percent of GDP in 2011.
Thanks to an agreement reached with Spain's euro-zone partners, the Iberian nation's budget deficit target for this year has been set at 6.3 percent of GDP as opposed to 5.3 percent, while the goal for 2013 is a deficit of no more than 4.5 percent of GDP.
Spain's main labor unions, Comisiones Obreras and the UGT, said they will hold marches before month's end to protest the new austerity measures, while thousands of coal miners staged a large rally on the streets of Madrid against a whopping 63 percent cut in subsidies for that sector.
The new measures were welcomed by the European Commission, which hailed them as an "important step" to ensure Spain's compliance with deficit-reduction targets.
The Iberian nation's economy has been battered in recent years by the global recession and the collapse of a massive real-estate bubble, which has left many of its banks saddled with toxic property assets.
Investors reacted positively to the new austerity plan, with Spain's benchmark IBEX 35 stock market index rising 1.17 percent Wednesday and the yield on the country's 10-year bond falling sharply to near the 6.5 percent level on the secondary market.
The yield on that same debt had climbed above 7 percent earlier in the week prior to a decision on the bank-bailout plan, a level most economists agree is unsustainable over the long term. EFE