SPAIN'S new government is hoping that it can prevent the country becoming the fourth EU nation to be bailed out after it unveiled a €15bn austerity package that will hike taxes and cut spending.
But Prime Minister Mariano Rajoy, who was swept to power last month by a disaffected electorate in a country where unemployment is running at 22pc, also revealed that Spain's financial position was worse than previously thought.
Spain's deficit will touch 8pc this year, forcing it to boost taxes by €6bn and slash spending by €8.9bn. The deficit figure is much higher than the 6.6pc forecast by the European Commission and the 6pc predicted by the previous Spanish government. Bigger cuts will be needed to get Spain's finances under proper control.
Mr Rajoy's government has pledged to cut the country's deficit to 4.4pc of gross domestic product next year.
That will mean severe cuts for services, while the latest revenue-raising measures include taxes on large homes and the nation's wealthiest citizens.
Savings will also be hit with new taxes, but pensions will rise 1pc and a popular €400-a-month payment to unemployed people will be retained.
Deputy Prime Minister Soraya Saenz de Santamaria described the new measures as the "beginning of the beginning".
"We are facing an extraordinary, unexpected situation, which will force us to take extraordinary and unexpected measures," she said.
Government hiring -- except for essential services such as education, health and security -- is being halted, while a freeze on civil service pay increases was also extended.
The cuts and new taxes unveiled yesterday will be supplemented by further measures in March, when the government delivers a formal budget.
Mr Rajoy also plans to overhaul hiring and other labour laws and will unveil initiatives next week.
Spain will also hold its first bond auction of the new year on January 12. The yield on its 10-year bonds fell seven basis points yesterday to 5.097pc.
Yields have fallen since last month's election, giving Mr Rajoy breathing room to fund more than €36bn in maturing debt in the first quarter of 2012.
Spain's efforts to prevent it having to be rescued by the EU and IMF came as Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, expressed concern about the region's growth prospects.
He said economic growth in the eurozone "isn't good" and that the global economy was only growing in Asia and Africa.
"This means that in 2012 we have to be prepared for the situation to become more foggy, to say it in a friendly way," he said.
Pressure continued to pile on the euro yesterday too, with the currency worth less than 100 Japanese yen for the first time since December 2000.
The euro region also risks being left behind amid a US recovery. The US economy -- the world's largest -- is likely to accelerate growth next year even as Europe continues to grapple with its debt crisis.
"There is a sense of decoupling," said Maury Harris, the chief economist at UBS Securities in New York.
"We can still have a decent year here in the US even with the rest of the world slowing down."