On Tuesday, we reported that the finance ministers of eurozone reached a consensus to rescue the Spanish banks with a 100 billion euro package. The first phase of this funding will come with a 30 billion euro bailout money that will be ready by the end of this month. The accord allows Spain leverage until year 2014 to bring down its deficit to 3 per cent of GDP, the eurozone limit, from last year’s level of 8.9 percent. It should be noted here that withdrawals from Spanish banks already amount to 30% of the country’s GDP (that number looks to be increasing as mentioned below).
The euro zone members had agreed last month to inject aid into the Euopean banks and to intervene in bond markets to support troubled member states. As an aftermath to the Brussels accord, the Spanish government enforced more austerity measures in the form of an increase in sales tax and budget cuts, which are aimed at lower the country’s total budget by 65 billion euros till 2015. The measures taken by the Government to achieve this goal are, decrease in wages of civil servants and members of parliament, reduction in unemployment pay, lowering the number of town councilors, cuts in government subsidiaries to political parties/unions, closures of state-owned companies, and ending the tax deductions given to homeowners.
Also last month Spain passed a law on financial transactions to enforce capital control. The law was drafted in a bid to prevent tax fraud and was approved by the Council of Ministers.
The measures that will be taken under the bill would be:
- Prohibition on cash payments greater than €2,500 involving business deals by entrepreneurs and freelancers
- Non-resident payers can make cash payments upto €15,000 euros.
- Upon infringement on this limit, both the payer and payee will have to pay the laibility.
- The restrictions apply to individual or enterprise businesses but NOT on private transactions
- An obligation to communicate all foreign “accounts, securities, bonds, annuities or real estate” .
- Those who fail to submit their foreign assets will be fined a minimum of 10,000 euros.
Spain has been struggling with the financial meltdown, people are already apprehensive of an exit from the euro currency and these added restrictions will only elevate the anxiety among businesses and consumers. Spain is Europe’s fourth biggest economy, and has been severly battered by the euro crisis. Today almost every fourth person in Spain is facing unemployment, which is the highest recorded rate among the countries of European Union.