Spain unveiled its most stringent budget cuts in decades yesterday as it finds itself at the centre of an European effort to contain the eurozone crisis.
The new conservative government of prime minister Mariano Rajoy has proposed over €27 billion ($36 billion) in budget cuts - with a 9.6 per cent reduction from 2011 central-government spending - through income-tax increases, spending cuts by ministries and incentives for tax avoiders and repatriating income.
Deputy prime minister Soraya Sáenz de Santamaría said, Spain was in a desperate situation when it came to fiscal outlook. He added the country was looking to turn the situation around, as well as putting the foundations for growth and job creation.
The draft would require approval from the parliament, where the prime minister's party has an absolute majority. The budget would come into effect in May, but a public uproar would be expected. The government faced a general strike over its labour reforms that got 800,000 people to protest in the streets. (See: Spanish unions protest austerity, labour reform)
Spain is back to square one on the crisis only a few months after it seemed to have made some progress during the worst of Europe's travails. The price the country pays to borrow from the market has increased once again as worries intensify that its economic woes run deeper than earlier believed and that a return to growth was not likely soon.
According to analysts, if the euro-zone's fourth-largest economy cannot convince EU leaders and investors its financial house was in order, it may be forced to receive some form of external aid. Such a move would test Europe's resources and resolve to preserve the euro and could potentially destabilise the region.
The situation in Spain would also test austerity measures, that have been put in place in many troubled European countries, and their potential to ultimately reignite the renewed economic growth that has been elusive since the outset of the crisis.