Spain's General Strike Highlights Risks of Making Prime Minister Rajoy's 'Very, Very Austere' Budget Work

Spain's unions are on a general strike across the recession-hit country Thursday, as public sector workers lash out against the government's latest round of painful austerity measures.

Many flights are cancelled, its public transport network has been brought to a near standstill, and manufacturing will slow down for the day as unions battle against the government's attempts to revive Spain's moribund economy with some of the deepest budget cuts the public purse has seen.

"Regardless of whether [the general strike] is considered a success or failure, the government is not going to alter the reform one jot," Luis de Guindos, economy minister in the ruling centre-right People's Party, said.

Around €35bn will be shaved off of Spanish public sector finances in 2012 in the government's attempts to meet European Union deficit reduction targets for the year, from its current level of 8.5 percent of GDP to 5.3 percent.

Spanish Prime Minister Mariano Rajoy will pass what he describes as a "very, very austere budget" Friday, a day after the general strike, which some suggest could be equal to around 3.2 percent of GDP.

As a result of the strike, Spain's biggest airline Iberia is cancelling 222 flights - 60 percent of its schedule.

Unemployment in Spain is at 23 percent, the highest in the eurozone, and the country's GDP figures show a contracting economy.

In the last quarter of 2011 Spain's GDP fell by 0.3 percent.

By the end of 2012, its economy is predicted to contract by a further 1.7 percent as the country wallows in its second recession in three years.

Some Spanish economists are predicting that budget cuts will have to go as deep as €64bn in order to meet the EU's targets.

Spain's government is in a difficult balance.

On the one hand it must deliver convincing and effective austerity measures to meet deficit reduction targets in order to hold down its borrowing costs below the 7 percent yield mark on its medium-term goverment debt - the level at which bailouts were trigged for Greece, Portugal and Ireland. Spain's benchmark ten-year bonds are currently trading at around 5.43 percent.

However it is struggling to pull its country out of recession and get the economy moving again, so the deep public sector cuts are seen by some as hindering a recovery.