Until 2008 the Spanish government’s borrowing was under relative control. When Spain became a member of the euro-zone it rebuffed offers of cheap loans (although many banks and ordinary Spaniards didn’t).
Spain experienced a long boom, which was supported by a housing bubble. But the housing bubble burst, and the economy has been shrinking by 1% annually ever since.
The Spanish government is now borrowing frantically in order to cope with the effects of the recession, the property collapse, and the highest unemployment rate in the euro-zone.
So, with a weakened banking sector putting pressure on the government, Spanish unemployment running at more than 24%, and house prices tumbling by 25%, something had to be done to prevent the euro-zones fourth largest economy from going into complete meltdown.
Enter: Spanish PM Mariano Rajoy.
Rajoy has announced a series of austerity measures, such as a 3% VAT rise, which he hopes will cut the public budget by 65 billion Euros. Rajoy also stated that local authority budgets would be cut by 3.5 billion Euros, sales tax would increase to 21% and that Christmas bonuses for public workers would be suspended. Other austerity measures that will be implemented include a six month cut off for unemployment benefit, an 8-10 % rise in the reduced VAT rate on processed food, public transport and hotels, the 20% reduction of subsidies for workers, unions and political parties, and the cutting of up to 30% of some area’s councillors.
Rajoy insists that over the course of two and a half years such tax rises and spending cuts would slash 65 billion Euros from the budget (6.5% of Gross Domestic Product).
The MP also made it clear to parliament that these measures must be swiftly accepted and put into immediate effect, and that everyone must demonstrate their commitment to the new EU model. He added that ‘The excesses of the past are being paid for right now’ and being paid for by a population who have never before experienced such a recession. Knowing that the measures would not be popular, Rajoy highlighted how public services would most certainly be put at risk without a cut in Spain’s budget deficit and emphasised the urgent need to attend to the five million unemployed. Meanwhile analysts have said that a viable plan for Spanish deficit reduction will be required by European leaders.
These extreme measures are a trade off, needed to secure the necessary 2014 extension to Spain’s deficit reduction targets and the equally essential 30 billion euro bank bailout offered by euro-zone finance ministers. Spain’s 30 billion euro bank bailout is to be only the first instalment of a potentially 100 billion euro package. Before payment of the 30 billion Euros can be made at the end of July Euro-zone ministers must first receive the approval of their own governments.
It just so happened that as Rajoy announced the austerity measures a protest against government cuts to subsidies was culminating in hundreds of Spanish miners arriving at the nation’s capital.
Ahead of the larger protests planned for today, last night Spanish miners held rallies in Madrid’s Puerta del Sol square after covering hundreds of miles completing a three-week ‘black march’ on the capital. The ‘black march’ began on the 22nd of June in Northern Spain, an area in which protests outside coalmines have led to altercations with police. It was in protest not only to the government’s extreme industry subsidies cuts of 63%, but the extensive reduction in the funding available for children in poor mining areas and for miners who wished to learn a new profession. The plan to slash the coal industries subsidies by almost 200 million Euros, from 301 million to 111 million, has angered many. Unions have claimed that the cuts will threaten 30,000 jobs and could see the destruction of their industry.
The Spanish government has responded with the argument that mining is a small and unprofitable part of the economy, and has been paid disproportionately high subsidies.
A spokeswoman for the UGT Trade Union, Conchi Alonso, stated that mining had already been dwindling dramatically, with only 9,000 people employed in the Spanish industry. With coalminers in Spain earning an average of £950/ €1,200 a month further cuts will have a real impact. Ms Alonso accompanied the miners on the march and stated that she found the experience ‘utterly unique’ and emphasised how moving it was to see firsthand the miner’s commitment and how they helped each other.
Thousands of enthusiastic supporters awaited the marching miners. The crowds lined the streets chanting words of encouragement and support as, with helmet lamps glowing, the miners poured onto Gran Via in the centre of Madrid.
Roberto Quintas has been a miner for 22 years in Villablino, near Leon, and he was overwhelmed by the level of support he and his colleagues had received. He said: ‘We didn’t expect such a big welcome […] The fact that people are coming into the street and mobilising is a good sign.’
A retired miner from the Aragon region, Manuel Cinoceda, explained his feelings towards the action, stating ‘The fight is for something just, we are just coming to claim what is ours.’
On Wednesday a second throng of miners began to rally, with unions announcing hopes that they would attract at least 25,000 people.