REUTERS

MADRID

RECESSION-PLAGUED Spain unveiled new austerity measures on Wednesday designed to slash 65 billion euros from the public deficit by 2014 as Prime Minister Mariano Rajoy yielded to EU pressure to try to avoid a full state bailout.

The conservative leader announced a 3-point hike in the main rate of Value Added Tax on goods and services to 21 percent and cuts in unemployment benefits and civil service pay and perks in a speech interrupted by jeers and boos from the opposition.

“These measures are not pleasant, but they are necessary.

Our public spending exceeds our income by tens of billions of euros,” he told parliament.

Analysts said the draconian savings plan, tearing up several of Rajoy’s campaign promises, showed Madrid was already under de facto supervision from Brussels even though it has not requested a sovereign bailout and retains access to bond markets. Some said the tax increases could exacerbate the recession.

Spain won softer deficit targets from its European Union partners this week and also negotiated rescue aid of up to 100 billion euros ($123 billion) from the eurozone’s bailout fund for its crippled banking sector.

In line with recommendations from the European Commission, Rajoy announced new indirect taxes on energy, plans to privatize ports, airports and rail assets, and a reversal of property tax breaks that his Popular Party had restored last December.

Keeping one election promise, Rajoy did not touch pensions but he said he would discuss with the Socialist opposition a change to the system in line with EU recommendations to link benefits to life expectancy. He also said the tax burden was being shifted from taxes on labour and income to consumption and energy in line with European policy.

In the streets of Madrid, hundreds of coal miners who had staged a long march from northern Spain protested against cuts in mining subsidies they say will put them out of work, as public discontent over austerity measures grows.

With five years of economic stagnation and recession, unemployment at 24.4 percent and tax revenue falling, Spain is struggling to reduce the deficit after far overshooting its target last year.