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Spanish stock market suffers losses after further austerity announcement


08:57, July 13, 2012

MADRID, July 12 (Xinhua) -- The Spanish stock market closed on Thursday with the IBEX-35 stock market lost 2.58 percent, finishing the session on 6,630 points following government's announcement of further austerity measures on Wednesday.

Meanwhile, the risk premium increased its mark by nine points compared with Wednesday's figure, ending the session on 539 points.

The market's response seemed to imply that Prime Minister Mariano Rajoy's announcement of economic measures to combat the high public deficit failed to exert a positive effect.

Among these measures, the standard Value Added Tax rate will rise from 18 percent to 21 percent.

Antonio Argandona from IESE Business School of Barcelona defended that these measures were necessary as Spain has "two main problems: recession and public deficit."

However, he warned that so far they can only "contain the current problem," because they need to be successfully carried out and boost productivity.

Xavier Vence, professor of Applied Economics at the University of Santiago de Compostela, argued that these measures are a mistake as "they are not addressed to solve the crisis of the productive economy and the big problem of unemployment."

Instead, they are designed "to save resources" to bail out the Spanish banking system, he said.

Vence explained that the Spanish demand will be negatively affected by these measures, because wages will be reduced and taxes will increase. In his opinion, this "will undermine the employment situation and public and private revenue."


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