Spain unveils new round of budget cuts

Spain unveiled a new round of austerity measures Friday to help bring its massive budget deficit under control and to convince nervous investors that it is not in need of an international bailout.

The government announced that it would sell off part of its popular national lottery, partially privatize several of the country’s biggest airports and raise the tobacco tax to bring in billions of dollars to the state’s coffers.

A monthly subsidy for the long-term unemployed is also to be scrapped, and taxes for small and medium-sized businesses will be eased in a bid to stimulate economic activity.

The measures come on top of a $19-billion austerity plan introduced by Madrid in May to help narrow a budget gap equal to 11% of Spain’s economic output. While there are signs that the deficit is indeed coming down, the markets have pressed for further signs of the government’s determination to cut public spending.

Those demands became particularly acute this week after international finance officials agreed to a $113-billion rescue deal for struggling Ireland, which, like Spain, employs the euro. The bailout failed to calm investors, who drove up the cost of borrowing for Portugal and Spain out of fear that the two Iberian nations would also have trouble paying their bills.

Spanish Prime Minister Jose Luis Rodriguez Zapatero canceled a visit to Latin America to push for the new austerity package, which his Cabinet approved at a meeting Friday. Zapatero has publicly insisted that there is “absolutely no chance” his country would apply for emergency aid from either the European Union or the International Monetary Fund.

Madrid was rewarded Friday with a drop in the yield on its bonds, retreating from a record high reached this week. Yields on Portuguese bonds also fell, relieving some of the pressure on Lisbon to apply for a bailout. Both countries’ stock markets closed higher for the weekend.

The slight rebound in investor confidence was boosted by the European Central Bank, which increased its purchases of government bonds Thursday to reassure the markets. An auction that day of $3.3 billion in Spanish debt also went smoothly.

The government austerity measures unveiled Friday include the sale of minority stakes in the state lottery and various airports, including Barajas international airport in Madrid.

Taxes on cigarettes are also due to rise by 24%, which the government anticipates will generate an extra $1 billion a year.

henry.chu@latimes.com

Special correspondent Hazel Healy in Madrid contributed to this report.