Spain's Leader Vows to Cut Deficit

Updated from 5:11 a.m. EST
Updated to include background, details.
By Harold Heckle

MADRID -- Spain's prime minister mounted a vigorous defense Saturday of his nation's economy and finances, insisting his administration will forge ahead with austerity measures and force troubled banks and regional governments to reveal information about savings and restructuring efforts.

Jose Luis Rodriguez Zapatero was responding to heavy market pressure that has put Spain in the spotlight as the country that could plunge the 16-nation euro zone into meltdown if it were to end up needing a bailout like those provided to Ireland and Greece.

Many investors believe Portugal could be next in line to need a bailout, and they fear Spain could then follow.

Zapatero spoke after meeting with the heads of 37 of the country's largest corporations, and he said Spain's plans for deficit reduction and increased competitiveness will restore the international confidence that has crumbled throughout the week.

Among those present were Emilio Botin, president of Banco Santander S.A.(STD), the country's largest bank, Cesar Alierta of telecommunications giant Telefonica S.A.(TEF) and Antonio Brufau of energy company Repsol YPF(REP).

The meeting happened a day after Zapatero ruled out any possibility that Spain would require a bailout.

"The government is committed to austerity, to reducing the deficit," Zapatero said Saturday, seeking to reassure investors that his government is taking the threat to its economy seriously.

Many of Spain's provinces are struggling under mountains of debt. Even though they have slashed spending, Zapatero said they must go farther by presenting "quarterly reports on their budgets, which will be added to monthly information from central government."

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Zapatero said the structural reforms under way in Spain, which include loosening hiring and firing restrictions in the job market, freezing pensions and liberalizing the energy sector, will eventually boost the country's competitiveness -- among the worst in the eurozone.

He said Spain's plans to reduce its deficit were "being fulfilled scrupulously" and added that the country's total debt was 20 percentage points below the European average. Spain's debt at the end of 2009 was 560 billion euros ($740 billion), roughly 60% of its GDP.