Strike-hit Spain in 'very difficult situation'

(COPENHAGEN) - Spain is in a very tough financial situation, Europe's top economic official said on Friday, as the strike-hit government prepared to unveil a budget with deep cuts to satisfy EU rules.

Speaking to reporters ahead of a crunch meeting of eurozone finance ministers where Spain's budget was likely to be a topic, EU Economic and Monetary Affairs Commissioner Olli Rehn acknowledged: "Spain is in a very difficult situation."

"But Spain has many strengths in order to improve the sustainability of its finances," added the European Union commissioner.

Rehn declined to comment on the strikes, which unions said attracted nearly a million people in Madrid alone to decry labour reforms, the spending cuts and soaring unemployment in a country plunging into recession.

The general strike descended into violence in places, notably in Barcelona where youths set fire to a two-storey Starbucks.

Spanish Finance Minister Luis de Guindos said he was confident that the budget "would convince" Madrid's European partners.

"We are bringing an explanation of the Spanish budget. This budget is based on a policy of austerity, which will be the springboard for an economic revival of the country," the minister told reporters.

Asked about the strike, he said: "The government is listening."

"But the reform (of the labour market) is necessary to create jobs and return to economic growth."

Spain must craft a 2012 budget to bring down the public deficit to the equivalent of 5.3 percent of economic output this year from 8.51 percent last year.

That means at least 20-30 billion of euros ($26-40 billion) in austerity measures, on top of 8.9 billion euros in spending cuts and 6.3 billion euros in tax increases already announced this year.

Spain needs to squeeze about 50 billion euros out of the budget if it is stand by its deficit-cutting targets and calm mounting concern in Europe and on financial markets, analysts say.

"We had a very severe budgetary slippage in 2012 but Spain will cease to be a problem," said the minister.