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Make or Break

July 1st, 2010, is a date with a certain significance for Spain. The Standard rate for IVA (Impuesto sobre el Valor Añadido) is being raised from 16 % to 18 % from today, to help bring the Spanish national budget back in line and also, to help the government of José Luis Rodríguez Zapatero remain in power until the end of this term. Reduced rate IVA will not be raised on basic food items like milk, bread and cheese, as well as medicine, and will remain at 4 %. Non-essential food items, restaurant meals, hotels and hairdressers will have the rate of IVA increased from 7 % to 8 %.

Spanish households will not only have to pay 2 % more on most purchases and essential services such as electricity, telephone and petrol from today but, the price for a bombona of Butano gas went up from 11.68 € to 12.23 € from midnight as well, an increase of 14.4 % since the beginning of this year. Gas natural (town gas) increased by 8.1 % from today as well (not all that much of an issue in Mallorca, as yet). The rate of inflation in Spain for the month of June was indexed at 1.5 %, below 2 % for the 8th consecutive month, but with today’s hike in VAT, next month may already be different.

Only yesterday, Moodys rating agency warned that a downgrading in Spain’s Aaa rating might be forthcoming. Earlier in the year, Standard & Poor’s and Fitch, the two other main Ratings agencies already downgraded Spain’s rating to AA. However, the Euro strengthened slightly to 1.2286 $ yesterday on news that European banks applied for a much reduced rate of borrowing from the ECB (European Central Bank).

Now is a time of make or break for Spain, or so it would seem. If only our local politicians in Mallorca would wake up to the seriousness of La crisis.

The photo was chosen from my archive. It was taken in Palma de Mallorca, Baleares, Spain. The date: March 31st, 2010. The time was 13:41:33.

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