Rajoy reveals more austerity pain for Spain

Spain's embattled leader was also reportedly under pressure over the prospect of small savers losing billions of euros through a write-off of some bank debts.

According to a draft memorandum of understanding, losses within a number of controversial savings products would have to be written off in return for a bank securing bailout funds.

The country's banks were granted €30 billion (£23.6bn) of up to €100bn (£78.8bn) promised by eurozone finance ministers to help them recapitalise after enduring huge losses in gambles on the country's now collapsed property boom.

In parliament Mr Rajoy was forced to confirm further spending cuts to demonstrate to his European partners that his country was committed to tackling its deficit and avoiding the need for a full state bailout.

He asserted that his plan was aimed at slicing public spending by €65bn (£51.2bn) over the next two-and-a-half years to meet an EU target of reaching a public deficit target of 3 per cent of GDP by 2014.

Despite having pledged no change in VAT, Mr Rajoy confirmed that he had been forced to raise it from 18 per cent to 21 per cent under pressure from lenders.

The swingeing cuts also included a tax scheme for the energy sector that will drive up bills for both companies and consumers.

Also on Mr Rajoy's agenda are the privatisation of airports, railways and ports.

Public administration is to be savagely hacked to save €3.5bn (£2.75bn), including a drastic cut in the number of publicly owned enterprises and a 30 per cent cut in the number of local councillors.

The EU has agreed to relax the deficit cuts target to 6.3 per cent of GDP from 5.3 per cent in 2012, to 4.5 per cent from 3.0 per cent in 2013 and then impose a 2.8 per cent goal in 2014.

But Spain has to present an even greater austerity plan for 2013 and 2014 by the end of this month.

foreigneditor@peoples-press.com