video transcript

Spain's 2013 budget was never going to be painless. After much speculation the government wants to knock 40 billion euros off its ballooning budget deficit. Deputy Prime Minister Soraya Saenz de Santamaria says it will be focusing on spending cuts rather than tax hikes. (SOUNDBITE) (Spanish) DEPUTY PRIME MINISTER, SORAYA SAENZ DE SANTAMARIA, SAYING: "The road ahead for the government for the next six months is to carry out key economic reforms to grow and generate jobs, but in addition, we will comply, through this strategy, with the recommendations of the European councils and also of our European partners." But as the slew of reforms were reeled off, it looked like another sleepless night for many in Madrid. Spain hopes to avoid the political humiliation of having Brussels imposing bailout conditions on it like Greece. Peter Dixon is an Economist at Commerzbank. (SOUNDBITE) (English) ECONOMIST AT COMMERZBANK, PETER DIXON, SAYING: "There is a serious danger that we could find a split between the ordinary person on the street and the direction in which the government wants to travel in which makes it much more difficult to push through reform because after all when it comes down to it fiscal policy has to be governments acting on behalf of the the people not against them." So far Mariano Rajoy's efforts to slash one of the euro zone's biggest deficit's have been undermined by high unemployment and recession. He's been talking to Brussels about the terms of a possible aid package that would trigger an ECB bond-buying programme and ease Madrid's unsustainable borrowing costs. (SOUNDBITE) (English) CHIEF ECONOMIST AT COMMERZBANK, PETER DIXON, SAYING: "We know that a number of prominent German politicians are irritated by Spanish foot dragging on this issue in the sense that the longer we wait for that shoe to drop the more markets are going to be concerned. And concerned they were - the FTSE 100 lost billions of pounds as fears over Spain's future rocked the markets. The euro took a battering on the announcement hitting new session lows. But there could be another storm brewing for Rajoy. Pictures of the conservative leader enjoying an expensive cigar in New York have emerged. Flaunting his taste for the finer things in life won't go down well with Spaniards making yet more painful sacrifices. Ciara Sutton, Reuters.