Spanish PM says economic disaster averted

Spain's Prime Minister Mariano Rajoy declared Wednesday he had saved the country from economic disaster and vowed to crack down on corruption, in his first state of the nation address as he fended off a party slush-fund scandal.

The conservative 57-year-old leader lamented Spain's jobless queue of nearly six million people and a jobless rate of more than 26 percent, but vowed to press ahead with his programme of budget restraint and economic reforms.

"We have left behind us the constant threat of imminent disaster and we are starting to see the path for the future," said Rajoy, whose party took power in December 2011 after ousting the Socialists in an election landslide.

He vowed "not one single minute of rest" in pushing on with reforms.

Rajoy said Spain had curbed its yawning public deficit to less than 7.0 percent of total economic output in 2012 from 9.4 percent in 2011.

Spain had agreed with Brussels to lower the deficit to 6.3 percent of gross domestic product last year, but getting it under seven percent would still be a considerable achievement given Spain's sharp economic contraction.

Analyst Christian Schulz of Berenberg bank said the deficit figure was lower than analysts had forecast and could be a "positive catalyst", easing the risk of the crisis worsening.

"A lower than expected deficit would mean that the impact of the harshest austerity could fade in late 2013. Chances for an end of the recession would rise," he wrote in a note.

Rajoy's speech came at a sensitive time, amid popular anger at pay and job cuts and following allegations that he and other members of his conservative Popular Party had received secret envelopes of cash channelled from donors.

Rajoy has denied the allegations of undeclared payments, which have sparked calls for him to resign.

Without mentioning the scandal explicitly, Rajoy confronted the issue by calling for harsher criminal penalties for corruption.

He insisted Spain did not suffer from "generalised corruption".

"Spain is a clean country going through tough times in which cases of corruption emerge just like in any other," he said.

-- Spain out of the 'noose' --

The prime minister defied predictions that Spain would have to seek a sovereign bailout last year, thanks in large part to a promise by the European Central Bank to intervene in the markets if needed.

Rajoy highlighted the easier conditions Madrid now enjoys when borrowing on financial markets.

"The noose of external debt that tormented us with such force is no longer strangling us," Rajoy said.

He said Spain had managed to post a surplus in its current account -- the broadest measure of its trade and financial transactions with the rest of the world -- from July to November last year.

"Put it another way: we no longer need external financing and our external debt is being reduced."

He announced a series of reforms aimed at stimulating economic activity in Spain, such as easing the deadlines for value-added tax payments by small and medium-sized businesses.

The clean-up of Spain's banks, swamped with bad loans since a 2008 property crash, would be largely complete in 2013, Rajoy said.

The first signs of a banking recovery were already being seen, he said, as Spanish banks had managed to borrow 6.29 billion euros on the financial markets so far this year -- a feat he said would have been "unthinkable" a year ago.

Rival political parties in parliament criticised Rajoy for not mentioning sensitive topics such as cuts in healthcare and evictions of ruined homeowners.

"Nothing is better than it was a year ago," said the leader of the main opposition Socialist Party, Alfredo Perez Rubalcaba. "Everything that matters is worse."

Rajoy admitted the economic climate remained harsh.

"No 'green shoots', or 'passing clouds' or 'early spring'," the prime minister warned. "The economic reality of our country is terribly tough."

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