Spain will make budget cuts worth more than €27 billion in 2012, including a freeze on public workers' salaries, to rein in its public deficit.
Government ministries will have an average reduction in their budgets of "around 17%" this year, Deputy Prime Minister Soraya Saenz de Santamaria said.
The comments came after a weekly cabinet meeting that approved the 2012 budget.
"We are in an extreme situation. Our top priority is to clean up public accounts," she said. "This is a moment that demands serious efforts to reduce spending but also structural reforms to cause the economy to grow and create jobs," she added.
Spain is racing to reduce to reduce its public deficit to reassure markets that it will not follow Greece, Ireland and Portugal in requesting an international bail-out.
The government unveiled its austerity budget for 2012 a day after a general strike against spending cuts and labour market reforms that make it easier to cut jobs, when violence flared at protests in some cities.
Hundreds of thousands of protesters swamped Spain's streets yesterday to back the strike, marred by clashes in Barcelona where youths set fire to bins and a Starbucks coffee shop.
Unions said nearly a million people took part in Madrid alone to denounce labour reforms, spending cuts and soaring unemployment in a country mired in recession. The interior ministry put turnout in Madrid at just 85,000.
As the government unveiled its budget, finance ministers from the euro zone were meeting in Copenhagen to decide on the size of a financial firewall for the euro zone.
This firewall is intended to ensure adequate funds would be available to support weak euro zone countries suffering new debt strains, and thereby calm tension on financial markets. Spain, having overshot its public deficit target last year, is once again a focus of concern among economists and investors.
Prime Minister Mariano Rajoy has said he is determined to keep his promises to euro zone partners to slash the deficit, even at a time of soaring unemployment and recession.
The Popular Party government must bring down the public deficit to the equivalent of 5.3% of economic output this year from 8.51% last year. That would mean at least €20-30 billion in austerity measures, on top of €8.9 billion in spending cuts and €6.3 billion in tax increases already announced this year.
The task is complicated by the recession, with the government predicting a 1.7% slump in economic output this year. While the Spanish government plans to freeze public sector workers' salaries - which were cut by the previous Socialist government - it ruled out raising sales tax and said pensions would still be raised.
"We have decided to continue to raise pensions, freeze the salaries of civil servants but not cut them and maintain unemployment benefits and spending on internships," said Saenz de Santamaria.
