Hard times ahead, warns Spain's new PM Mariano Rajoy

Mariano Rajoy has warned that very hard times lie ahead (EPA)

Spain's next prime minister has warned that very hard times lie ahead for the country as he revealed plans to cut its budget deficit.

In a keenly awaited speech to Parliament a month after being elected, conservative Mariano Rajoy did not specify what mix of spending cuts or tax hikes might be used to chop around £14 billion and get the deficit down to Spain's stated goal of 4.4% of GDP in 2012.

The deficit was 9.2% of GDP last year and estimated by the outgoing Socialist government to be about 6% his year - a figure Mr Rajoy suggested may be too optimistic.

He said Spain's staggering jobless rate had risen to around 23% overall and around 46% for people under 25.

"The panorama could not be more sombre he said.

Mr Rajoy said he would end a freeze on cost-of-living adjustments for pensions, but said besides that every category of government spending is now subject to review.

Spain's economy was upended after the 2008 credit exposed a national property bubble. Now borrowing costs are soaring for the eurozone's fourth-largest economy, and Spain is often cited along with Italy as a candidate to be the next country that might have to join Greece, Ireland and Portugal in accepting an international bailout. But Spain's economy is larger than those three smaller nations combined and considered too big for Europe's rescue fund to handle.

Mr Rajoy's Popular Party won November elections by a landslide over the ruling Socialists. He has a comfortable majority in parliament and will be voted in as premier on Tuesday, then formally take office on Wednesday.

Another key focus will be labour market reforms designed to encourage hiring, such as changes to the way companies and unions negotiate collective bargaining accords.

Mr Rajoy has given Spain's main business federation and unions until mid-January to come up with a package on their own. Otherwise, the government will act with a bill.