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Protesters take part in a demonstration outside Madrid's Parliament, September 26, 2012. Violent protests in Madrid and growing talk of secession in Catalonia are piling pressure on Spanish Prime Minister Mariano Rajoy as he moves closer to asking Europe for rescue money. The placard reads, "Democracy!"

SUSANA VERA/Reuters

Spain faces another deep round of social spending cuts as the ailing country tries to reduce its budget deficit by €40-billion ($50.6-billion) in 2013, the government has announced.

The spending cuts could trigger another social backlash in a country that is reeling from Europe's highest jobless rate – 25 per cent – and falling incomes. But it appears that Madrid is gambling that spending cuts will be resisted less than wholesale tax hikes.

The Financial Times is reporting that the fresh austerity package, which may pave the way to financial assistance from the European bailout fund and the European Central Bank, consists of 58-per-cent spending cuts and 42-per-cent tax hikes.

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Spain's Budget Minister, Cristobal Montoro, said at a press conference in Madrid that he expects a "soft recession" in 2013, based on a forecast for a contraction of 0.5 per cent, though some economists think the recession could be much deeper as the austerity measures remove stimulus from the economy. Almost every piece of Spanish economic data – from unemployment and to house prices – is going in the wrong direction.

Mr. Montoro said the interest on Spain's public debt will reach €38.6-billion next year from this year's estimated €28.8-billion as funding costs rise and budget deficits remain stubbornly intact.

The government of centre-right Prime Minister Mariano Rajoy also announced that 43 new laws to reform the economy will come in the next half year, and that several big industries, including telecommunications and energy, will be liberalized. Labour reform is to continue.

It appears that few federal budgets and programs will remain untouched. Even El Gordo, the famous "Fat One" national lottery, is to get hit. Lottery winnings of more than €2,500 are to be taxed for the first time.

The European Union was quick to endorse the Spanish budget. In a statement, EU Economics Commissioner Olli Rehn called the budget "concrete, ambitious and well-focused."

The new measures came after two days of mass anti-austerity protests in Madrid, which turned violent at points, and similar protests, plus a national strike in Greece, which is negotiating new terms designed to unlock the next round of bailout payments.

As Spain unveiled the austerity budget, Italian Prime Minister Mario Monti underlined the severity of the Italian crisis by hinting that he would be prepared to stay on as leader if the 2013 elections do not produce a clear majority. Mr. Monti was appointed last year, after the resignation of Silvio Berlusconi, to run a technical government charged with taming the deficit and restoring growth.

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Speaking at the Council on Foreign Relations in New York, Mr. Monti said: "Should there be circumstances in which they were to believe that I could serve helpfully after that period of elections, I will be there, I will consider, I cannot preclude anything," according to Reuters.

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