Rajoy announces new austerity measures for Spain

Prime minister of Mariano Rajoy has announced a new set of austerity measures for Spain.

It is hoped these drastic budget cuts will slash the troubled Iberian nation's deficit by €65 billion (£51.3 billion) through to 2015, but despite the significant steps being taken, the leader has warned it is unlikely the eurozone's fourth-largest economy will grow in 2013.

Mr Rajoy has called on all Spaniards to back these austerity plans, reminding the public that the nation's financial health is in an "extraordinarily serious" condition.

The measures will include a value-added tax (VAT) increase to 21 per cent from 18 per cent and cuts to unemployment benefit and public-sector pay.

Mr Rajoy's government said previously that, although it would be taking steps to reduce its deficit this year, it would not be raising VAT.

"We are trying to stick to a path that is not easy, short or comfortable, but we can't avoid it - this is the only one that leads to recovery," he remarked.

The precise amount these latest cuts will save Spain has not yet been ascertained, but it will help the country achieve its €65 billion target by complementing measures already in place.

Mr Rajoy's announcement has been welcomed by the European Commission - the executive branch of the European Union (EU).

Analysts have said these latest steps may hurt the Iberian economy's recovery from recession and might not be enough to save Spain from needing a fully-fledged bailout on top of a plan to support its banking sector using €100 billion in EU loans.

At 08:45 BST, the Madrid Ibex was down 1.4 per cent to an index value of 6708.5 points, while the German Dax slipped 1.1 per cent to 6381.5 points.

The French Cac's downward trajectory is less severe, retreating by 0.7 per cent to 3135.2 points.