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Spanish Leader Announces New Austerity Measures For Debt-Troubled Country

Spansih Prime Minister Mariano Rajoy speaks before parliament in Madrid on July 11.
Spanish Prime Minister Mariano Rajoy has announced a new series of austerity measures that he says could save the debt-troubled country 65 billion euros ($80 billion) over the next few years.

The measures unveiled on July 11 include raising value-added tax from 18 to 21 percent, scrapping Christmas bonuses for civil servants, eliminating some tax reductions, and reducing unemployment benefits.

Rajoy told parliament that Spain was in a "very weak" position because of its "excessive indebtedness and serious recession."

"Ladies and gentlemen, with the inevitable fiscal adjustment we must take on the structural reforms our economy needs to recover its competitiveness and flexibility to generate growth and jobs," Rajoy said.

Austerity measures have been demanded as part of a deal in which the 16 other countries in the eurozone will provide Spain with up to 100 billion euros ($123 billion) to rescue Spain's debt-burdened banks.

Under the deal, announced on July 10, Spain could receive up to 30 billion euros ($37 billion) in July to help the banks.

Rajoy acknowledged that the value-added-tax rise contradicted a campaign pledge made before his Popular Party came to power.

As recently as January, Rajoy said there was no plan to raise the tax.

"I said I would decrease tax but I'm increasing it. I have not changed criteria," he said. "I will reduce them when it is possible but circumstances have changed and I need to adapt to them."

The austerity measures also include cutting the budgets of government ministries by 600 million euros ($735 billion). Local administrations are also expected to see reductions as part of the plan to cut 65 billion euros from state budgets by 2015.

Unemployment Concerns

European Union officials have welcomed the Spanish move. A spokesman for EU Economy Commissioner Olli Rehn called the measures "an important step to ensure that fiscal targets for this year can be met."

The Spanish measures were announced as the International Labor Organization said in a new report on July 11 that austerity was not likely to repair the economic troubles in Europe.

The UN's labor office warned in a statement that unless economically struggling states move from austerity to job-creation policies, unemployment could rise to almost 22 million in the 17-member eurozone over the next four years.

Spain's unemployment is running at more than 24 percent, the European Union's highest rate.

Spain, the eurozone's fourth-biggest economy, has joined Greece, Ireland, and Portugal in requiring an international rescue package. Cyprus has also recently said it will require a bailout because of its links to Greece.

Meanwhile, Spanish coal miners were protesting in Madrid, angered by huge cuts in government subsidies for their industry.

Reports say clashes between protesters and police resulted in 23 minor injuries. The confrontation took place in front of the Industry Ministry.

With reporting by AFP, AP, and dpa
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