Protests in Spain
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Protests erupted in Spain this week as Spanish Prime Minister Mariano Rajoy announced during a six-hour session of parliament a significant shift in fiscal policy. Rajoy, who promised during his campaign not to raise the Value Added Tax (VAT), proposed new austerity measures based on raising the tax three percentage points from 18 percent to 21 percent. Also included in the austerity measures were cuts to jobless benefits and reductions in public services funding for local governments.
Spain’s unemployment rate remains at 24.4 percent, making the tax increases and unemployment benefit reductions a difficult shift for Spain’s populace. As the announcement came, Spain’s cost to borrow fell to 6.8 percent, a much more sustainable level.
As Spain’s prime minister navigates an expected 1.7% economic contraction this year, euro zone finance ministers loosened deficit targets for Spain this year. As the Spanish fiscal crisis evolves, European officials have begun discussing another bailout for Spain.