Spanish PM pledges reforms after IMF warning

Spanish Prime Minister Mariano Rajoy on Saturday vowed reforms to make the economy "more flexible and competitive", a day after an IMF warning following a huge bailout for Madrid's stricken banks. In a hard-hitting report less than a week after the eurozone agreed on a banking rescue of up to 100 billion euros ($126 billion) for Spanish banks, the International Monetary Fund Friday listed a string of needed reforms to regain market confidence. These included higher Value Added Tax, immediate legislation on future public wage cuts and separating "non-viable banks" from those that need no aid and those that are viable but need support. "We must undertake reforms which will make our economy more flexible and competitive", Rajoy told members of his Popular Party. "We have to prepare for the future," he added, without elaborating. Madrid has instructed banks exposed to the collapsed property market to strengthen balance sheets, restructured hardest hit Bankia, reformed labour rules and introduced new budget laws that include taking greater control over big-spending regions. Thousands of drum-and-pan banging protesters gathered outside Bankia's Madrid headquarters later on Saturday to decry the institution's rescue. Demonstrators also put up posters saying: "This bank lied, cheated and threw people onto the streets", a reference to homeowners who lost their houses after they could no longer repay their "toxic" loans. The markets, too, have not been impressed by Spain's latest actions. Spain's risk premium, the extra interest rate investors demand for its 10-year bonds over their safer German equivalent, hit 5.54 percentage points Friday, the highest since the 1999 birth of the eurozone. The nation's 10-year bond yields spiralled to 6.967 percent earlier in the week, another euro-era record. Recession was deepening, unemployment was at 24 percent and rising, and homes and businesses trying to shed debt would likely mean falling output this year and next, the IMF said. Consumption and investment should recover "modestly" if financing conditions stabilise and as labour market reforms kick in, the Washington-based lender said.