The reference was a clear allusion to the recent sharp rise in Spanish borrowing costs, which have hovered near 5.5 per cent for more than a week. Eurozone and Spanish officials have launched a two-front offensive in an attempt to prevent the country becoming the next crisis victim.
Ministers agreed to increase the ceiling of their two bailout funds to €700 billion, an attempt to erect a firewall big enough to convince markets the EU can protect Spain. In Madrid, the government announced €27 billion in benefit cuts and tax increases as part of the toughest budget since 1975. As part of what Cristóbal Montoro, the budget minister, referred to as the “the biggest fiscal consolidation of the democracy”, €12.3 billion will be raised in new taxes, with €5.3 billion coming from corporate taxes, and €2.5 billion projected to come from a temporary amnesty on tax evasion.
Other savings will come from cutting ministry budgets by almost 17 per cent to €65.8 billion this year. The foreign affairs ministry is hardest hit, losing 54 per cent of its funding. Industry and agriculture both lost just over 31 per cent each.
The second document, which was prepared by the Commission, warned bluntly: “The euro crisis is not over. Many of the underlying imbalances and weaknesses of the economies, banking sectors or sovereign borrowers remain to be addressed.” The paper argued the elements of the recent restoration of confidence – finalising a second Greek bailout, increasing the eurozone’s rescue fund, EU-wide bank recapitalisation, new eurozone fiscal discipline rules, and efforts to pass policies to encourage growth – must be fully implemented or leaders risk losing their last chance to act.
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