The Spanish government presented its stability programme to the European Commission on Wednesday (3 February), outlining a timetable to rein in an excessive deficit that reached 11.4 percent of gross domestic product last year.
Under the plan, Spain will aim to cut its budget deficit to 9.8 per cent of GDP this year, 5.3 per cent of GDP by 2012, and eventually fall in line with EU limits of 3 percent by 2013.
Last Friday the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero agreed to some €50 billion worth of savings by 2013.
Despite the clawbacks, the stability programme, part of an economic reporting system under EU rules, forecasts Spain's debt-to GDP ratio will continue to rise, reaching 74.3 percent in 2012.
The country's debt situation is considerably better than many EU states however, with a debt-to-GDP ratio last year of 55.2 percent, compared with a median of 78.2 percent for the EU as a whole.
EU rules allow for maximum debt ratios of 60 percent, but the financial crisis and subsequent recession have pushed many member states over the threshold.
The Spanish economy was thrust into the limelight last month when New York University professor Nouriel Roubini, known for his early prediction of the economic crisis, said Spain posed a major threat to the stability of the European currency club.
"The eurozone could drift, essentially with a bifurcation, with a strong centre and a weaker periphery, and eventually some countries might exit the monetary union," he warned from the World Economic Forum in Davos, Switzerland.
"If Greece goes under, that's a problem for the eurozone. If Spain goes under, it's a disaster," he continued.
Spain suffers from a jobless rate that is by far the highest of the main eurozone economies. At roughly 19 percent it is almost double the bloc's average, with the country's unemployment register this week topping 4 million for the first time since the current system of records began in 1996.
The country's banking system was considered to be fairing better than others during much of the financial crisis. However last month saw the commission approve a Spanish plan to recapitalize its banking sector, in a bid to continue the normal lending of credit institutions. Others point to the profound effect the country's huge number of unsold houses could eventually have on its financial sector.
Speaking in Brussels on Wednesday, EU economy commissioner Joaquin Almunia said Greece, Portugal and Spain had suffered a "permanent" decline in economic competitiveness since joining the euro region.
EU data show Spanish, Greek and Portuguese labor costs have risen more than four percent a year on average in the last decade, compared with 2.1 percent in Germany.