Spain has paid a heavy price for its bank bailout, the European Central Bank is now effectively in charge of the Spanish economy. The cuts which Prime Minister Mariano Rajoy announced this week were clearly decided at the ECB rather than Madrid because Rajoy´s government is now deeply unpopular. Rajoy said that he would never raise the VAT rate, and he did by three percent this week. He defended the move by saying that difficult times called for difficult decisions. The fact that civil servants will not be receiving their Christmas double pay this year has almost stunned the nation. The increase in the VAT rate will hit consumer spending hard and many big stores are planning not to pass the increase on to the shopper. But there are many in Spain who still believe that the cuts are not enough and additional funds will still have to be found from somewhere. The government is already hinting at the possibility of selling off the highly profitable Spanish airports. Rajoy knew that once he accepted the bailout he would no longer be effectively in charge of the Spanish economy. The ECB is calling the shots. Spain will have to follow their orders or risk being punished with no bailout. These are very hard times and the rise and fall of the Spanish economy is clearly highlighted by the fact that not long ago Spain could have joined the G8 of rich industralised powers. Now it is forced to accept a bailout with all its implications.
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