Spain Piles On Austerity Measures 
Spanish Prime Minister Mariano Rajoy Wednesday announced fresh austerity measures that should help Madrid cut its budget deficit by €65 billion ($79.62 billion) through to 2015, and said the euro-zone's fourth-largest economy may not grow at all next year.
() - The measures were swiftly welcomed by the European Commission, the European Union's executive arm, but market participants said they could slow the country's recovery from recession. Spain is likely to be forced to request a full-fledged financial bailout on top of recent European agreement to support its struggling financial sector with up to €100 billion.
Spain's Prime Minister Mariano Rajoy opens his briefcase at the start of a parliamentary session in Madrid on Wednesday.
The new measures were presented by Mr. Rajoy in a dramatic parliament address in which he called Spain's situation "extraordinarily serious." They include value-added tax hikes, lower jobless benefits, wage cuts for state employees and billions of euros in savings from local government reforms.
These steps build on previous measures that have already led to an income tax hike as well as steep budget reductions for all ministries. They also come as Spanish officials are negotiating detailed conditions for the EU financial bailout that may force Madrid to give up most of the control over its banks to European institutions, and impose losses on local holders of banks' subordinated debt.
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"We are trying to stick to a path that is not easy, short or comfortable, but we cannot avoid it—this is the only one that leads to recovery," Mr. Rajoy told lawmakers.
Madrid expects the economy to contract 1.7% this year, and euro-zone finance ministers agreed Monday to relax Spain's budget deficit targets to 6.3% of gross domestic product in 2012 instead of 5.3%, down from a deficit of 8.9% last year. Tax revenue has dropped due to what Mr. Rajoy called Wednesday "the second-deepest recession in Spain's history," and many observers say that even having less stringent targets would be hard to meet.
Ioan Smith, a director in London-based Knight Capital brokerage, said raising indirect taxes in Spain now was "tantamount to economic destruction."
Mr. Rajoy said official data suggest the economic slump will continue and gross domestic product growth would be closer to zero next year. Previously the government had forecast growth of 0.2% in 2013.
He acknowledged that the government's austerity measures would hurt but called on Spanish citizens to back the plans, including local authorities, the business community, workers and the media.
"We either work together to reach the same goals or our efforts will be fruitless," he said.
The new measures include an increase in the standard rate of value-added tax to 21% from 18%, and the lower rate to 10% from 8%, a cut in jobless benefits for new claimants, a salary cut of around 7% for state employees.
The measures also anticipate making €3.5 billion in savings in local government through an ambitious process of centralizing powers at the provincial, or county, level. This is the latest step to counter three decades of power devolution from the center that has left many concerned about the degree to which Madrid can force austerity on lower-level authorities.