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Spain braced for further austerity in 2012 budget Spanish government to unveil 'very austere' budget
(about 4 hours later)
Spain will unveil a raft of austerity measures in its annual budget later as it tries to keep within stringent deficit targets. The Spanish government is due to unveil what is expected to be one of the toughest budgets in its recent history.
Newly-elected Prime Minister Mariano Rajoy has already warned the budget will be "very austere".Newly-elected Prime Minister Mariano Rajoy has already warned the budget will be "very austere".
Markets are becoming increasingly concerned that Spain's debts are becoming unmanageable. The global financial markets are increasingly concerned that Spain's debts are becoming unmanageable.
The budget comes a day after widespread strikes across the country over labour reforms designed to cut unemployment. On Thursday, Spanish police clashed with protesters after a general strike was held to protest against labour reforms designed to cut unemployment.
Road, rail and air transport were all affected, with domestic and European flights cut to a fraction of their normal levels.Road, rail and air transport were all affected, with domestic and European flights cut to a fraction of their normal levels.
Bailout fears
Spain, which is suffering from the highest levels of unemployment in Europe, is under intense pressure from eurozone leaders to reduce its deficit.
Correspondents say there is concern that if the situation does not improve, Spain might eventually need a bailout.
The BBC's Gavin Hewitt in Brussels says the cuts are expected to be around 35bn euros ($46.5bn; £29bn), and that health and education funding are unlikely to escape.
Budget Minister Cristobal Montoro said it would be the most austere budget since Spain became a democracy.
"It needs a budgetary effort that up to now we have probably never made in our country."
On Thursday, police clashed with demonstrators as hundreds of thousands swamped streets in Barcelona and other cities.
Unions said 800,000 people joined the protest in Barcelona. Police put the number at 80,000.
Some marchers in the city smashed windows and set rubbish bins alight. Police fired tear gas and shot rubber bullets at the ground, TV pictures showed.
In the capital, Madrid, unions said around 900,000 people took part. The government did not give a figure.
'Not yielding'
Our correspondent says the size of the demonstrations on Thursday were an indication that many are losing patience with austerity.
Unemployment in Spain is currently the highest in the EU at 24%. Nearly half of Spain's under 25s are out of work.
The general strike was the government's first big challenge since Mariano Rajoy took office after elections last November.
Despite the opposition, the government says it is committed to reining in its spending.
"The question here is not whether the strike is honoured by many or few, but rather whether we get out of the crisis," Mr Montoro said.
"That is what is at stake, and the government is not going to yield."
The budget comes on the same day that eurozone finance ministers meet in Copenhagen to discuss the bloc's bailout fund, designed to protect itself against individual members being unable to repay their debts.The budget comes on the same day that eurozone finance ministers meet in Copenhagen to discuss the bloc's bailout fund, designed to protect itself against individual members being unable to repay their debts.
However, analysts say long-standing differences between some members, in particular France and Germany, mean there is no guarantee an agreement will reached.However, analysts say long-standing differences between some members, in particular France and Germany, mean there is no guarantee an agreement will reached.
Spending cuts
In January, Mr Rajoy outlined 8.9bn euros ($11.8bn; £7.4bn) in new budget cuts, as well as tax increases designed to raise 6.3bn euros.
However, in order to meet a strict EU deficit target of 5.3% of total economic output, Madrid needs to make further cuts.
They are also needed to keep borrowing costs, which have crept higher in recent weeks, at a manageable level.
"To [achieve this deficit target] it will be necessary to cut spending and/or raise taxes by some 55bn euros," said Angel Laborda at the Savings Bank Foundation.
Spending cuts at a time of weak economic growth are proving deeply unpopular.
In fact, the Bank of Spain said this week the country's economy has returned to recession, after contracting in both the final quarter of last year and the first three months of this year.
Spain also has the highest unemployment rate in Europe at 23%, with more than half of young people out of work.
The government has introduced legislation designed to free up the labour market, but this has only succeeded in fuelling public anger.
The legislation, approved last month, makes it easier for companies to fire employees and reduces maximum severance pay.
It was these measures that sparked Thursday's mass demonstrations across the country.