Spain's incoming prime minister Mariano Rajoy took aim at his country's economic woes today, promising deep spending cuts in public administration while offering tax breaks for companies.
In his first speech to the country's new parliament, Mr Rajoy said budget stability, a costly fresh round of bank consolidations and reforms to Spain's economy, such as its rigid labour law, would be his central objectives.
Mr Rajoy's centre-right People's Party was elected by a landslide in November. It faces a near-impossible task to revive an economy sliding into recession as the euro zone debt crisis widens, while meeting harsh European austerity demands.
"We are confronting enormous difficulties and must make very demanding efforts," Mr Rajoy told parliament. After a two-day parliamentary debate the self-proclaimed "Mr. Normal" will be sworn in by King Juan Carlos on Wednesday and name his cabinet.
The euro zone's fourth-largest economy is at the centre of the bloc's debt crisis and investors have driven up Spain's borrowing costs to near-unsustainable levels.
But Mr Rajoy's promises of more austerity has boosted confidence and debt yields have fallen from euro-era highs since the election.
The risk premium on Spanish benchmark bonds over German benchmark debt narrowed today by around 4 basis points to 331 basis points. This compares with 491 for Italy.
Mr Rajoy began his address with dire warnings for the struggling economy, which is believed to have already fallen into its second recession in three years. Domestic demand is flagging and export growth slowing.
Spain's unemployment rate, moreover, is more than double the European Union average at 21.5 per cent.
Economists said Mr Rajoy may make all the right moves but still fail to save Spain.
Efforts by the 17 euro zone members to solve their debt problems comprehensively have been slow coming and relatively unsuccessful to date.
Mr Rajoy said if Spain met its public deficit goal of 6 per cent of gross domestic product in 2011 - which most economists say is unlikely - the Treasury would need to find €16.5 billion in savings next year to meet the next target.
He said he would implement a hiring freeze on most of the public sector and announce detailed spending cuts on December 30th.
But Mr Rajoy outlined some immediate tax benefits for companies in order to boost employment and demand.
Small companies and the self-employed will not have to pay taxes before clients have paid them, as they currently do.
Firms that make their first hire will get a €3,000 euro tax benefit, and corporations with less than €5 million in revenue will be put into a more favourable tax bracket.
Another business-friendly measure he announced was to move public holidays that fall in the middle of the week to the closest Monday or Friday. This should discourage people from taking more time to stretch the holiday.
He also said banks must sell off billions of euros property assets - the hangover from a building bubble that burst in 2007 - and then be recapitalised.
But Mr Rajoy did not say whether or not he would form a state-owned bad bank to hold the assets after party sources said he was studying doing so.
He said he would raise pensions in real terms - after the Socialists had frozen them - but pledged that would be his only spending increase.
He also hinted at reforms to the country's treasured public health system saying his party will redefine the basic services that the state would guarantee for everyone.