Spain's next PM: Very tough times lie ahead

By Daniel Woolls

Associated Press

Published: Monday, Dec. 19 2011 5:25 a.m. MST

Citizens hold up a mock coffin reading in Basque '' I Need To act'' during a protest against planned cutbacks, in Pamplona, northern Spain, Saturday, Dec.17, 2011. Next week Mariano Rajoy will be appointed as the next Spanish Primer minister , as Spain suffers in the economic crisis with more than five million unemployed.

Alvaro Barrientos, Associated Press

MADRID — Warning that very hard times lie ahead for Spain, the country's next prime minister said his incoming conservative government aims to reduce Spain's deficit by €16.5 billion ($21.6 billion) next year.

In a keenly awaited speech to Parliament a month after being elected, conservative Mariano Rajoy did not specify what mix of spending cuts or tax hikes might be used to get the deficit down to Spain's stated goal of 4.4 percent of GDP in 2012.

The deficit was 9.2 percent of GDP last year and estimated by the outgoing Socialist government to be about 6 percent his year — a figure Rajoy suggested may be too optimistic.

Rajoy said Spain's staggering jobless rate had risen to around 23 percent overall and around 46 percent for people under 25.

"The panorama could not be more somber," Rajoy said.

Rajoy said he would end a freeze on cost-of-living adjustments for pensions, but said besides that every category of government spending is now subject to review.

Spain's economy was upended after the 2008 credit exposed a national real estate bubble. Now borrowing costs are soaring for the eurozone's fourth-largest economy, and Spain is often cited along with Italy as a candidate to be the next country that might have to join Greece, Ireland and Portugal in accepting an international bailout. But Spain's economy is larger than those three smaller nations combined and considered too big for Europe's rescue fund to handle.

Rajoy's Popular Party won Nov. 20 elections by a landslide over the ruling Socialists. Rajoy has a comfortable majority in Parliament and will be voted in as premier on Tuesday, then formally take office Wednesday at the residence of King Juan Carlos.

A budget for 2012 will be submitted to Parliament by the end of the year, Rajoy said.

Another key focus will be labor market reforms designed to encourage hiring, such as changes to the way companies and unions negotiate collective bargaining accords. Rajoy said he has given Spain's main business federation and labor unions until mid-January to come up with a package on their own. Otherwise, the government will act with a bill.

"These reforms must be done as soon as possible," Rajoy told the 350-member Congress of Deputies, the lower chamber of Parliament.

He also announced tax changes to help self-employed people and small- and medium-size companies.

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