After the riots, Spain swings the axe on spending

Madrid approves most brutal cutbacks since the Franco era as Europe boosts bailout fund

A day after violent protests and a general strike took over most Spanish cities, the government in Madrid yesterday announced the country's deepest cuts in public spending in more than 30 years.

The eye-watering Budget, the most austere since the Franco era, included a €27bn (£22.5bn) package of spending cuts and tax rises. It came as European finance ministers buckled under international pressure and agreed to increase the size of the eurozone's "firewall" in an attempt to dampen fears of a return of financial contagion and to unlock more resources from the International Monetary Fund.

But it was still uncertain last night whether the decision to boost the eurozone bailout funds to €800bn would either find lasting favour with financial markets or persuade non-eurozone G20 nations to sanction an increase in the IMF's lending capacity.

Last night UK Treasury ministers were said to be "underwhelmed" by the European deal. And Whitehall sources indicated that the Government would not be making its mind up soon about additional IMF resources.

The Finnish Prime Minister, Jyrki Katainen, also warned yesterday that his country would not approve more bailout funds if this latest effort was found wanting.

Meeting in Copenhagen, finance ministers agreed on a plan to combine the funds of the existing bailout pot, the European Financial Stability Facility (EFSF), with the funds of the incoming European Stability Mechanism (ESM). This will take the new emergency lending capacity of the eurozone to about €800bn.

The decision on increasing the IMF's total lending capacity from $500bn to $1 trillion will be taken by nations on the multinational lender's board at meetings scheduled for next month. Britain and the United States have both argued that the IMF must not increase its resources until Europe makes a significant further commitment of its own.

Speaking to The Independent yesterday, Mr Katainen, who took a hard line in negotiations over the size of the firewall, warned that more funds on top of this would not be forthcoming because further pledges risked undermining the solvency of some of the few remaining AAA-rated nations in the eurozone, such as Finland.

"We do what we can, what is responsible and what is credible. If somebody says you have to destroy your credibility by raising a firewall to too high a level, then one cannot help, you have to leave," he said.

Such comments indicate that counties such as Spain will have to manage on their own. The Prime Minister, Mariano Rajoy, promised tough new measures when his Partido Popular came to power last November. He was true to his word yesterday, and all government ministries will face enormous cuts to their budgets, averaging 16.9 per cent.

Hardest hit, despite a joint last-minute petition from 500 NGOs on Thursday, was the Ministry of International Development and Co-operation. El Mundo reported that the ministry's total budget will be slashed by €1.3bn, on top of the €1bn removed from development and social programmes in a previous round of cuts in December.

Spain's enormous civil service will see pay frozen and job creation schemes pruned. Consumers will also suffer. Electricity charges will rise by 7 per cent, and gas by 5 percent. A rise in corporation tax, coupled with last December's increases to rates, income tax and capital gains tax, is estimated to net the government an extra €12.3bn, and a further €25bn could come via a black market amnesty.

The Treasury Minister, Cristobal Montoro, recognised that the cuts were "the biggest in democracy" but that he believed "these policies will bring us out of our difficulties".

It will be of scant comfort to the Spanish people – already battered by 23 per cent unemployment and suffering the country's second recession since 2009 – that the cuts could have been even bigger. Spain had initially pledged to the EU a budget deficit target of 4.4 per cent this year, whereas the latest austerity measures aim to reduce it to only 5.3 per cent.

With Spain now falling back into recession, there are fears that the harsh cuts and tax increases could exacerbate the economy's problems, a view that the Spanish government was at pains to deny yesterday. Given that the preceding cuts provoked Thursday's general strike, more popular unrest following yesterday's announcements cannot be ruled out.

Start your day with The Independent, sign up for daily news emails
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm today
Elton John and David Furnish exchange marriage vows
peopleSinger posts pictures of nuptials throughout the day
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
Arts and Entertainment
The Lord of the Rings and The Hobbit director Peter Jackson with his star on the Hollywood Walk of Fame
Billie Whitelaw was best known for her close collaboration with playwright Samuel Beckett, here performing in a Beckett Trilogy at The Riverside Studios, Hammersmith
people'Omen' star was best known for stage work with Samuel Beckett
Arts and Entertainment
Mark Wright has won The Apprentice 2014
tvThe Apprentice 2014 final
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Receptionist

Negotiable: Recruitment Genius: This law firm is seeking a happy, helpful and ...

The Jenrick Group: Production Supervisor

£26000 - £29000 per annum + Holidays & Pension: The Jenrick Group: Production ...

The Jenrick Group: Project Engineer

£33000 - £35000 per annum + Pension and holidays: The Jenrick Group: Project E...

The Jenrick Group: Maintenance Technician

£35200 per annum + Pension and holidays: The Jenrick Group: Maintenance Engine...

Day In a Page

Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'