Spain unveils €27bn savings package

Spain’s government has unveiled a €27bn deficit-reduction package including spending cuts and tax hikes on large companies, as it scrambles to convince the EU and investors that it will not need a bailout.

Deputy Prime Minister Soraya Saenz de Santamaria said the 2012 draft budget calls for cutting central government ministry spending by an average of nearly 17% and freezing civil servant wages. Overall government spending will be cut by €17bn .

Finance Minister Cristobal Montoro said it was the most austere budget proposal since Spain regained democracy in 1977 after the death of General Francisco Franco.

“We are taking extraordinary measures because the situation is extraordinary,” Montoro told a news conference after a Cabinet meeting at which the budget plan was passed.

The blueprint will go to Parliament on Tuesday and is expected to be formally passed in June.

Spain’s commitment is to cut its budget deficit to 5.3% of GDP from 8.5% last year. The challenge is doing so as the economy shrinks and with unemployment of nearly 23%.

The austerity plan came a day after a general strike over labour reforms that make it easier and cheaper for companies to lay people off.