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Spain doubles down on austerity

Not a good time to be young and unemployed in Iberia.

The Spanish government has unveiled further austerity measures in a bid to slash another €65bn from the deficit by 2014.

The Prime Minister, Mariano Rajoy, announced a three-point increase in VAT, taking it up to 21 per cent, as well as cuts to unemployment benefits and civil service perks.

Reuters reports:

In line with recommendations from the European Commission, Rajoy announced new indirect taxes on energy, plans to privatize ports, airports and rail assets, and a reversal of property tax breaks that his Popular Party had restored last December.

Keeping one election promise, Rajoy did not touch pensions but he said he would discuss with the Socialist opposition a change to the system in line with EU recommendations to link benefits to life expectancy. He also said the tax burden was being shifted from taxes on labor and income to consumption and energy in line with European policy.

It's hard not to see an undercurrent of generational politics in the choice of cuts, as with so many austerity policies across Europe (including, of course, in Britain). While youth umployment in Spain stands at 51 per cent, life for those out of work is made harder, while people collecting pensions are protected from the worst of the pain.

That's not to say that they won't still be hit. As Krugman argues, Spain's deficit is not the root of it's problems, but is actually a sympton of something which will be a lot harder to treat with mere austerity:

Spain needs to increase exports to make up for the jobs lost when its housing bubble burst. And it faces years of a highly depressed economy until costs have fallen enough relative to the rest of Europe to achieve the needed gain in competitiveness.

It's not just Rajoy's fault that these decisions have been made, however. Yesterday, EU's finance ministers insisted Spain stick to a plan to bring the public deficit down to 3 per cent of GDP, but gave the country an extra year to do so. This year, its target has been relaxed to 6.3 per cent.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.