Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget.
His speech comes as hundreds of Spanish miners arrived in Madrid to protest against government cuts to subsidies.
Mariano Rajoy is expected to unveil a rise in VAT as well as cuts to social security and unemployment benefits.
The measures are in return for a eurozone bank bailout and an extension to Spain’s deficit reduction targets.
Eurozone finance ministers have agreed to provide 30 billion Euros for Spain’s troubled banks by the end of the month and to give Madrid an extra year – until 2014 – to hit its budget targets.
Mariano Rajoy told parliament that the measures he was announcing had to be adopted without delay.
Spain’s Prime Minister Mariano Rajoy has begun addressing parliament, setting out a new raft of austerity measures aimed at balancing the budget
“The excesses of the past are being paid for right now,” he said, adding that Spaniards had never before experienced such a recession.
Without a cut in Spain’s budget deficit, public services would be put at risk.
The door had been opened to a new EU model, he said, and the summit agreements had committed everyone equally.
Analysts say European leaders want to see a credible Spanish plan for viability and deficit reduction.
Mariano Rajoy warned on Saturday that further austerity was on its way, in a country with unemployment running at more than 24% and rising street protests over drastic spending cuts.
On Monday, budget minister Cristobal Montoro warned of an impending VAT rise, telling a business forum: “If VAT was paid by more of those who are supposed to pay, it would not have to be raised by so much.”
Most of the miners arriving in Madrid late on Tuesday had walked hundreds of miles since 22 June from northern Spain where protests outside coal mines have resulted in clashes with police.
They were greeted by thousands of supporters as they marched on Gran Via in the centre of the Spanish capital.
A second mass rally of miners is due to take place on Wednesday and unions hope it will draw at least 25,000 people.
The miners are angry at plans to slash coal industry subsidies from 301 million Euros last year to 111 million Euros this year.
Unions say the cuts threaten 30,000 jobs and could destroy their industry.
The Spanish government argues that it pays disproportionately high subsidies to a small and unprofitable part of the economy.
Overnight the miners streamed down Madrid’s streets with their helmet lamps shining in the dark.
Crowds lined the streets, chanting support.
“We didn’t expect such a big welcome,” said Roberto Quintas, a miner of 22 years from Villablino near Leon.
“The fact that people are coming into the street and mobilising is a good sign.”
Manuel Cinoceda, a retired miner from the Aragon region, added: “The fight is for something just, we are just coming to claim what is ours.”
Spain’s 30 billion-euro bank bailout will be the first installment of a package worth up to 100 billion Euros agreed in June.
Eurozone ministers must get approval from their own parliaments and hope to make the payment by the end of July.
Eurozone finance ministers have decided to lend Spain 30 billion Euros ($37 billion) this month to help its troubled banks.
It will be the first installment of a bailout of up to 100 billion Euros, which was agreed in June.
The ministers will need to get approval from their own parliaments and hope to make the payment by the end of July.
The eurozone finance ministers also agreed to extend the 2013 deadline for Spain to cut its budget deficit to the EU limit of 3% by one year.
The yield on Spanish bonds rose sharply on Monday ahead of the meeting, with many fearing that little concrete action on Spanish banks would be reached.
Eurozone finance ministers have decided to lend Spain 30 billion Euros this month to help its troubled banks
“We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, allowing for a first disbursement of 30 billion Euros by the end of the month to be mobilized as a contingency in case of urgent needs in the Spanish banking sector,” Eurogroup President Jean-Claude Juncker said.
“There will be specific conditions for specific banks, and the supervision of the financial sector overall will be strengthened,” he added.
The exact amount that Spain needs for the bailout of its banks may not be known until September.
Jean-Claude Juncker also said that Madrid should implement measures needed to bring its public finances into line with EU norms.
On Saturday, Spanish Prime Minister Mariano Rajoy announced that he would take further steps soon to cut the country’s public deficit.
In a news conference at the end of Monday’s marathon meeting, a number of appointments were also announced.
The ministers reappointed Jean-Claude Juncker as their chairman and picked German Klaus Regling to head the permanent bailout fund, the European Stability Mechanism, which is due to come into force this month.
The conclusions of the finance ministers from the 17 countries that use the euro will be submitted to a meeting of all 27 EU finance ministers later on Tuesday.
On Monday, the yield on Spanish 10-year bonds, which are taken as a strong indicator of the interest rate the government would have to pay to borrow money, had risen above 7%, while Italian bond yields had reached to 6.1%.
Yields above 7% are considered to be unsustainable in the long term.
The Euro and stock markets have boosted in Asia after a deal to shore up Spain’s troubled banks eased concerns about a European currency break up.
In Asian trade, the euro rose 1% versus the US dollar and Japanese yen. Stock indexes in Japan and Hong Kong rose 2%.
On Saturday, eurozone ministers agreed to lend Spain up to 100 billion Euros ($125 billion) to help its banks.
Analysts said the deal would buy time for policymakers to solve other problems facing the 17-nation eurozone.
The biggest issue now looming on the horizon is the 17 June elections in Greece, and the worry that an anti-eurozone party may end up in a position of power.
“All eyes are still on Greece’s upcoming elections but investors’ worries over the eurozone have eased in the short term,” said Andy Du of Orient Futures Derivatives.
According to Stephen Davies of Javelin Wealth Management, the fact that the Spanish banking bailout was bigger than many people had expected pointed to a continuing “degree of strain within the European banking system”.
The Euro and stock markets have boosted in Asia after a deal to shore up Spain's troubled banks eased concerns about a European currency break up
“It reflects the fairly dire straits within which Europe continues to find itself,” he added.
Spain’s weakest banks were left with billions of Euros of bad loans following the collapse of a property boom and the recession that followed.
Currently Spain is in its second recession in three years and the economy is expected to shrink by 1.7% this year.
Its economic problems have become so acute, and its borrowing costs in the international markets so high, that there have been concerns that the government would not be able to service its debts.
At the same time, there were fears that some of its banks would not be able to find enough capital to continue to operate.
The exact amount of emergency funding that Spain will receive will be decided after two audits of its banks are completed within the next few days.
Spain’s loan was welcomed by the International Monetary Fund (IMF) as well as the US and Japan.
Spanish Prime Minister Mariano Rajoy hailed the decision as a victory for the single currency.
European Union economic affairs commissioner Olli Rehn said the deal was a clear signal to the markets that the euro area was ready to take decisive action to calm markets and contain contagion.
Spain is the eurozone’s fourth-biggest economy – twice the size combined of those of Greece, Ireland and Portugal, the countries bailed out so far.
However, tensions over the euro remain high with another election to be held in Greece next weekend.
If voters elect a government that refuses to abide by the terms of the country’s bailout deal, Athens faces a possible exit from the bloc.
Analysts said that in the days leading up to the election it was likely that a low-risk appetite from investors would return.
There are fears that a Greek exit could trigger a run on the banks, not only there but in other eurozone countries.
Greece has been in recession for five years, crippled by huge debts, high unemployment and labor unrest.