Spain has said it will cut state employees' wages and slash investment spending in a bid to reassure markets that it can get its budget deficit under control and halt the spread of the European debt crisis.
'We need to make a singular, exceptional and extraordinary effort to cut our public deficit and we must do so now that the economy is beginning to recover,' Prime Minister Jose Luis Rodriguez Zapatero said.
Meanwhile, new figures show that the Spanish economy eased out of recession in the first quarter of 2010 as it recorded growth of just 0.1%.
Read how the euro zone economy is doing here
In the toughest deficit cutting moves by far by the Socialist government, Zapatero said the government planned to save €15 billion in 2010 and 2011 with a series of cuts including a reduction of more than €6 billion in public investment.
Civil service salaries will be cut by 5% in 2010 and frozen in 2011, sparking immediate anger from unions, who have already put the brakes on a government move to raise the retirement age to 67 from 65.
The measures were announced after European Union and International Monetary Fund officials agreed at the weekend on a €750 billion emergency fund for weak euro zone countries that have been hit by a debt crisis.
Economists said that after the weekend EU meeting it became very clear Spain and Portugal, and particularly Spain, would have to go the extra mile in cutting the deficit. They said today's actions were based on 'the Irish model'.
The pressures on Zapatero to act rose during the week as US President Barack Obama called him on yesterday and urged him to be 'resolute' in efforts to implement economic reforms.
The measures will now reduce the budget deficit to 9.3% of gross domestic product this year, from 11.2% in 2009. It will fall to 6% in 2011 and be reduced to 3% of GDP by 2013, the government said.
Spain sees first quarter growth of 0.1%
Spain eased out of recession with 0.1% growth in the first quarter compared to the preceeding quarter, the government statistics' office said in a preliminary report today.
The figures from the National Statistics Office confirmed a provisional report from the Bank of Spain released last week.
Spain, Europe's fifth largest economy, entered its recession in the second quarter of 2008 as the global financial meltdown compounded a crisis in the Spanish property market, which had been a major driver for growth in the preceding years.
The economy continued to contract until the fourth quarter of 2009 when it shrank 0.1%. Year on year, the economy shrank 1.3% from the first quarter of 2009, it added.
Spain is the last major world economy to emerge from recession.
