Spain: Next cut is the deepest

Every route around Spain's Parliament is guarded as thousands take to the streets to protest against Government spending cuts affecting pensions, wages, and retirement ages.

Protests spread in Spain, Greece as governments impose another round of cuts that may push weakened zone into recession.

Violent protests are expected to spread in Spain and Greece after their governments outlined plans to reduce spending and raise taxes to convince international lenders and financial markets they are on track to cut their deficits.

The latest round of belt-tightening comes as economies across Europe get weaker and public resentment toward austerity grows stronger.

There were clashes on the streets of Athens on Thursday as police fired stun grenades and tear gas at protesters who threw petrol bombs during a nationwide strike against austerity measures. Estimates put the number of people involved in the strike at 50,000.

There have also been protests outside the Spanish Parliament building in Madrid, demonstrators breaking down barricades and throwing rocks and bottles, and riot police responding by firing rubber bullets and beating protesters with batons. More protests were planned for the weekend.

Announcements that there will be even more belt-tightening were expected to add fuel to the fire.

The Spanish Government revealed the country's most severe round of budget cuts yet. Finance Minister Cristobal Montoro said the draft budget for 2013 would cut overall spending by €40 billion ($62 billion). He said cuts for ministries would average 8.9 per cent.

Spain's plan to slash its deficit in 2013 and 2014 signals to many analysts that it's preparing to request a financial lifeline from other governments and the European Central Bank. To receive this help, countries must first show they are serious about reining in deficits.

For similar reasons, Greece's coalition Government agreed to cut spending over the next two years by €11.5 billion. Without the cuts, Greece would have been refused vital bailout loans that it needs to pay its bills and stay in the eurozone. The loans come from the International Monetary Fund, European Union and the ECB.

Financial markets cheered the budget-cutting but the region remains in trouble. Economic confidence in the 17 countries that use the euro fell to its lowest level in more than three years, according to a survey by the European Union's Commission. Meanwhile, unemployment figures in Germany continued to drift higher, in spite of a small seasonal boost in jobs, underlining concerns that Europe's biggest economy is slowing down.

Across Europe, six countries are in recession and economists predict the entire region could be heading for recession by the end of the year.

Throughout the three-year financial crisis, eurozone governments have had to impose harsh cuts and reforms to get control of their debts and - in the case of Greece, Portugal and Ireland - qualify for vital aid. The austerity measures have hit citizens with wage cuts and fewer services, and reduced government spending has undermined growth.

Spain is at the centre of the eurozone crisis - its 1.4 trillion euro economy is the fourth-largest among the nations that use the euro. The country is struggling to prop up its shaky banking sector and support its heavily indebted regional governments. It has already introduced several packages of tax hikes, civil servant wage cuts and freezes in a bid to get out of the crisis.

To get help from the ECB, Spain must first ask for assistance from the rest of the euro-zone. So far, the Government has been reluctant to ask for fear of the conditions the countries would attach to its aid.

Analysts say the Spanish Government hopes yesterday's budget measures will be enough to stop the eurozone from imposing further spending and deficit controls if, and when, Spain asks for help.

Economy Minister Luis de Guindos said the measures "go beyond" the steps European officials have recommended Spain should take.

He added that Spain was consulting other countries in the bloc but has still not decided whether to ask for a bailout.

The country is battling to fulfil an EU commitment to reduce its deficit in relation to economic output from 8.9 per cent last year to 6.3 per cent in 2012, to 4.5 per cent next year and to 2.8 per cent by the end of 2014.

Greece's coalition Government hopes that yesterday's agreement on austerity cuts will be enough to meet the targets demanded by its international lenders and keep the vital bailout loans coming.

Finance Minister Yiannis Stournaras said the long-delayed agreement placed him in a stronger negotiating position before talks on Monday with representatives from the country's bailout creditors, who will have the final word on the cutbacks.

Greece has relied on international bailouts since May 2010. In return, it has imposed a punishing austerity programme, repeatedly slashing incomes, raising taxes as well as retirement ages. On top of the €11.5 billion that must be axed from state spending in 2013-14, Athens must also boost state rev-enues by an additional €2 billion over the next two years through tax reform and improved tax collection.

-AP