MADRID — Spaniards had been waiting for a month for their future prime minister to reveal how he planned to revive a battered economy and create jobs. His message, delivered just days before Christmas, was ominous: more austerity.
Voters desperate for change after two years of recession that pushed unemployment to 23 percent carried conservative Mariano Rajoy to victory last month. But in his first policy speech since winning the election, Rajoy dashed all hopes that 2012 might be any better than the current misery.
"The panorama could not be more somber," Rajoy told Parliament as he rattled off a list of Spain's myriad woes and proposals to remedy them, including austerity cuts worth €16.5 billion ($21.6 billion).
Rajoy sought to combine measures to boost economic growth with debt reduction. He announced reforms to encourage companies to hire and tax breaks for small and medium-sized firms that make up the bulk of the economy. He will also streamline the government with a hiring freeze for most groups of civil servants.
He stopped short of announcing public sector wage cuts on top of the 5 percent reduction his Socialist predecessor enforced. On the bright side, he vowed to end a freeze on cost-of-living adjustments for retirement pensions.
Spain's economy is still recovering from the implosion of a real-estate bubble in 2009 that created mass unemployment, depressed house prices and piled up bad loans for banks and the government.
The government is desperate to keep the economy from falling into another recession and to reassure international investors that the country can handle its high loans. That is key if Spain is to avoid the fate of Greece, Ireland and Portugal, which needed bailouts because investors feared they would default on their debts.
Rajoy's Popular Party won a landslide victory and absolute majority in Nov. 20 elections but he will take office only on Tuesday due to legal procedures.
He avoided giving specifics on how he will reduce the deficit. That information will presumably come soon, as the first Cabinet meeting is Friday.
But opposition parties seized on the lack of detail, while analysts noted much of the plan's success will depend on how the economy fares. It posted zero growth in the third quarter and many economists fear another recession in 2012. Rajoy did not give a growth forecast for next year.
The initial austerity package is aimed at meeting Spain's commitment to reduce its deficit to 4.4 percent of GDP next year from an estimated 6 percent this year.
"That is our goal, that is our commitment and we are going to stick by it: 16.5 billion euros in deficit reduction in 2012," Rajoy said.
But he noted this depends on the outgoing government's deficit and GDP growth forecasts, and the numbers are not in yet. Rajoy's new government will approve by year's end an extension of the 2011 budget as a stopgap measure and then offer a full 2012 budget by the end of March.
Spain's overall debt stood at €706.34 billion ($919.6 billion) as of the end of September, about 66 percent of GDP. While that figure is not high compared with other European countries — Italy's is almost twice that — the regional debt levels are worrying and there is an overhang of bad loans from the collapsed property sector.
Ben May, analyst at Capital Economics, said the eurozone debt crisis is likely to worsen next year, hindering Spain's efforts to bring its finances and economy back to health.
Capital Economics forecasts Spain's economic output will fall by 1.5 percent in 2012. "In that environment, it will be very difficult to reduce the budget deficit even if they do implement additional austerity measures," May said.
Investors seemed mildly supportive of Rajoy's plans, with Spanish stocks and bonds outperforming other European markets on Monday. The Madrid stock exchange rose 0.6 percent while borrowing costs for Spain's 10-year bond dropped 0.11 of a percentage point to 5.15 percent.
Spain's opposition Socialist Party slammed Rajoy for providing few specifics on how he will cut government services to reduce the deficit or create jobs.
"He didn't explain how he's going to do it," said Jose Antonio Alonso, spokesman for the Socialists. "It was a disappointing speech ... it was ambiguous and it wasn't clear."
Spain is often cited along with Italy as the next most likely European country to need international financial help. But both Spain and Italy's economies are larger than those three smaller nations combined and considered too big for Europe's rescue fund to handle.
The Fitch Ratings agency warned last Friday it was considering downgrading the credit ratings of Spain, Italy and four other eurozone nations.
With recession looming, some economists say that European governments need to balance some of their debt reduction measures with growth-boosting reforms.
Rajoy said his would focus on the labor market. He wants to encourage hiring, for example by changing the way companies and unions negotiate collective bargaining accords. The main business federation and labor unions have until mid-January to come up with their own reforms, otherwise the government will impose its own plan.
"These reforms must be done as soon as possible," Rajoy told the 350-member Congress of Deputies, the lower chamber of Parliament.
Banks heavily exposed to the burst real estate bubble need to get rid of thousands of unsold homes they hold, Rajoy said. Spain is saddled with about 700,000 unsold new homes from the construction binge.
Rajoy expects more bank mergers — troubled savings banks in Spain have already fused from 45 to less than 20 over the past two years.
He also endorsed a business leaders' proposal to boost productivity by moving most midday holidays to Monday, ending a cherished Spanish practice of creating four-day weekends when holidays fall on a Tuesday or Thursday.
Antonio Barroso, an analyst with Eurasia group, said Rajoy's measures addressed Spain's most pressing difficulties, such as unemployment and a vulnerable banking sector.
Barroso said "controlling expenditure is the number one priority" for the government but reducing the deficit and reforming public administration will be easier than restoring the health of the financial sector and tampering with labor entitlements.Comment on this story
He said tackling the problems of Spain's financial sector "is very complicated," adding that the Bank of Spain and the Popular Party are both split about the possibility of setting up a bad bank for toxic assets. Another possibility is establishing an asset protection scheme for financial institutions with bad property debts.
"The situation is very fluid," Barroso said of government solutions to the country's financial crisis.
Alan Clendenning in Madrid and Barry Hatton in Lisbon contributed to this report.