The Spanish government is going ahead with tough austerity measures despite stiff popular resistance across the country.
"This is a disaster…the equivalent of tying an anchor to a drowning swimmer. This has been tried in Greece, Ireland and Portugal and failed in all three countries. It will fail in Spain."
- David Lizoain, a writer for Social Europe Journal
The austerity budget – said to be the toughest in Europe ever – has increased concerns that austerity measures demanded by the EU will only push the economy deeper into recession.
Hundreds of thousands took to the streets of Spain to protest as the government prepared to approve $36bn in spending cuts and tax hikes.
Trade unions also staged a general strike that disrupted transportation and almost paralysed heavy industry to force the government to overturn plans that will make it easier to fire people.
Analysts say Spain needs to cut $50bn from the budget to hit targets on reducing its deficit but the economy however is slowing down.
The government expects it to shrink by 1.7 per cent this year. And unemployment is rising, with the jobless rate predicted to hit 24 per cent this year.
"Spain has a huge quantity of private, not public, debt…The economy has more or less collapsed…More government spending won't work."
- Edward Hugh, a macro-economist
As international markets worry that Spain's debt is simply becoming unmanageable, the government argues that austerity measures are necessary to avoid financial ruin.
Mariano Rajoy, the prime minister of Spain, has said that he is determined to stand by his promises to eurozone partners to slash the deficit, even at a time of soaring unemployment and recession.
So, are these cuts the answer to Spain's economic woes? Are they enough to address this deficit? And, will Spain need a bailout, a stimulus?
Joining Inside Story with presenter Hazem Sika for the discussion are guests: Edward Hugh, a macro-economist specialising in the Spanish economy and the European debt crisis; David Lizoain, an economist and writer for the Social Europe Journal, and the former advisor to the former president of Catalonia; Vincenzo Scarpetta, a researcher at Open Europe, an independent think tank calling for EU reform.
"Spain is very important for the future of the eurozone because it's a much bigger economy than Greece so if you can ring-fence Greece in some way you cannot do that with Spain. The contagion effect could be really serious for the eurozone."
- Vincenzo Scarpetta, a researcher at Open Europe