SPAIN – WARY of joining Greece as the next target for investors and concerned about rising levels of sovereign debt – has launched a radical cost-cutting plan to reduce its budget deficit from 11.4 per cent of gross domestic product last year to 3 per cent of GDP by 2013. It has sent the plan to Brussels for approval.

Economists and central bankers have cast doubt on the plan’s chances of success, saying its economic growth forecasts are too optimistic, and insisting on the need for ambitious reforms to the rigid labour market to make the economy more competitive.

“The market consensus is that Greece isn’t the real issue. It’s Spain,” Alastair Newton, senior political analyst at Nomura International, said yesterday.

The Spanish government seemed in disarray yesterday over the budget and public sector pay, two days after the first big trade union protests against government policies in six years of Socialist rule.

Carlos Ocaña, secretary of state for finance, said on Wednesday that a revision of a pay agreement with public sector employees was under consideration to ensure that staff costs fell 4 per cent by 2013 in line with the official budget plan.

His comments were widely interpreted as signalling a pay freeze, but the ministry yesterday denied any such intention and said a virtual block on hiring new staff would produce all the necessary cost cuts.

The opposition Popular Party, meanwhile, dismissed as “simplistic” and lacking in concrete proposals a government document presented to a meeting of political parties to try to forge a united Spanish front to tackle the crisis.

Cristóbal Montoro, PP finance spokesman and a former minister, said the government would have to correct its economic policies if it wanted to reach agreement and overcome the crisis.

In an attempt to restore confidence within Spain, and ultimately boost consumer spending, Spanish business leaders yesterday launched a campaign – which will include €4 million of advertising – with the slogan: “We can only fix this if we are all together.”

Miguel Angel Fernández Ordóñez, Bank of Spain governor, is campaigning vigorously for labour reform and budget restraint. Without reform, he said, the effect on the budget could be so bad that it would be hard to achieve the austerity plan’s aims.