Spain's governing Socialists won approval for a €15 billion austerity package by a single vote today, but the narrowness of the victory raised doubts over the government's ability to steer the country through an economic crisis.
The razor-thin majority piled pressure on Prime Minister Jose Luis Rodriguez Zapatero, who has been forced to ditch his party's traditional alliances in pushing through spending cuts and labour reforms as markets fret Spain could suffer a similar crisis to Greece but on a larger scale.
The prime minister called off a scheduled trip to Brazil today, as an end-May deadline loomed for an agreement with unions and business on wide-ranging labour reforms - a key policy demand by international markets.
Unions met today and warned that they would call a general strike if the government goes ahead with changes to labour market rules without their consent, saying there were still big differences with business on the reform.
They said agreement may not come before the end-May deadline set by the government. A regular Europe-wide meeting of unions is scheduled to take place in Brussels on June 1st.
"The government can set whatever deadlines it wants, we work at our own pace," the head of the CCOO union, Ignacio Fernandez Toxo, told journalists.
With the opposition Popular Party voting against the austerity bill, it was only saved when 10 deputies from centre-right Catalan nationalists CiU abstained.
CiU parliamentary leader Josep Antoni Duran i Lleida told parliament he did not want to plunge Spain into an immediate Greek-style crisis by blocking the austerity measures but that Mr Zapatero should call early elections next year.
"The problem is you and your government," Mr Duran i Lleida told Mr Zapatero, adding that his party would vote against the 2011 budget bill towards the end of the year.
Defeat for the budget would make it much more difficult for Mr Zapatero, lagging the Popular Party in opinion polls, to stay in power.
The austerity bill was approved by 169 votes to 168, as the Popular Party even made sure one of its deputies was brought to the session in an ambulance.
"This law is improvised, insufficient and unjust," PP leader Mariano Rajoy told parliament.
The PP, which has previously called for cuts in taxation, says the austerity package was made up on the hoof.
The cuts are a key plank in the Socialist government's efforts to cut the large budget deficit and restore confidence in Spain's ailing economy, which has barely edged out of recession after two years. It has the euro zone's highest jobless rate, at 20 per cent.
The government's plan aims to save an additional €15 billion and includes wage cuts of 5 per cent for civil servants this year. It aims to cut the budget deficit to 9.3 per cent of gross domestic product this year and to 6 per cent in 2011. It stood at 11.2 per cent last year.
United States President Barack Obama and German Chancellor Angela Merkel have both spoken personally to Zapatero and pressed him to implement reforms. Spain's economy is more than three times the size of Greece's and a deeper crisis there could have grave consequences for the euro zone and beyond.
The government must call elections by May 2012, but most commentators expect general elections in 2011.
Reuters