Spain: Rajoy mulls Vat hike and pension cuts

PM returns to Moncloa after two week holiday

20 August, 15:56

(ANSAmed) - MADRID, 20 AUG - Government sources in Spain say that a hike in VAT and pension cuts are likely, as Prime Minister Mariano Rajoy returns from a two week holiday to face the unresolved issue of a European bailout.

Ministers are due to meet on the 24th August to discuss a plan to provide 436 euro a month to Spain's unemployed and to approve a bill restricting share sales in private banks. Pending an anti-spread decision by the European Union due in the Autumn, the situation is looking brighter. The spread between bonos and German bunds fell today under the 460 basis point mark, while interest on 10 years bonds reduced to 6.2%.

According to analysts, this could be due to the imminent arrival of 100 billion euro of funding for the restructuring of the bank system granted by EuroGroup.

According to economics Minister Luis de Guindos, there will be no 'urgent request' for funding. In an interview last week he asked the European Central Bank for 'vigorous action, with no limitations' on markets, in order to brake pressure on debt.

A spokesman for German Finance Minister Wolfgang Schauble defined this hypothesis as 'very problematic.' According to reports in German magazine Der Spiegel, the European Central Bank is considering a cap on bond rates for intervention in countries under speculative attack.

Among the urgent tasks awaiting Rajoy is the creation of a 'bad bank', to cover real estate loans which are currently listed in the balance sheets of Spain's nationalized banks.

The government still hasn't made a formal request to Brussels for the first 30 billion euro bank bailout installment, and according to Ministry sources won't do so until after the current financial institution auditing, to be presented in mid September. An official decision on the request for a 'soft' bailout of the economy will also be postponed until after Rajoy's next international meetings: with the president of the European Council, Herman van Rompuy (28 August); with German Chancellor Angela Merkel (6 September); with Finnish President Sauli Ninistoe (11 September), and with Italian Prime Minister Mario Monti on 20 and 21 September. Prior to that the Spanish government could approve new measures to reach public deficit objectives planned for this year. (ANSAmed).

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