Spanish PM says economic disaster averted

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

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 achieved a twin task: avoiding the shipwreck that threatened our country and, without wasting a moment, launching the reforms needed for our system of production," Rajoy told parliament.

"For those who ask for some relaxation because the process of change is already under way -- not for a minute, not one single minute of rest," the grey-bearded prime minister said.

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 lowering the shortfall to less than seven percent would still be seen as a considerable achievement in a period of severe economic contraction.

"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.

The prime minister, who has denied receiving secret payments from his party in a scandal that emerged last month, called for harsher criminal penalties for corruption but insisted Spain was not a corrupt nation.

Rajoy said he was "disgusted" by cases of corruption but proud of the way the judicial system worked.

"It's one thing to condemn and pursue corruption by all means. It is another thing to sow the idea that Spain is a corrupt country, even among the most corrupt," he said.

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

Rajoy has denied as "absolutely false" purported Popular Party hand-written ledgers, published in the leading daily El Pais, supposedly showing secret payments to at least a dozen senior party officials including himself over more than a decade.

The scandal has sparked anger among Spaniards at a time when they are being asked to make sacrifices with lower salaries, welfare cuts, and lost jobs.

An online petition calling for Rajoy's resignation and snap elections, posted on, has garnered more than 1.1 million signatures.

-- Spain out of the 'noose' --

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

The prime minister 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."

Defending his spending cuts and tax rises launched last year, Rajoy also announced a series of reforms aimed at stimulating economic activity in Spain.

These included 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, said Rajoy, who last year obtained a European Union rescue loan of up to 100 billion euros ($134 billion) to finance the reforms.

First signs of a banking recovery were already evident, the premier said, as Spanish banks had managed to borrow 6.29 billion euros on the financial markets so far this year. A year ago, that would have been "unthinkable", he said.

But the Spanish leader admitted the economic climate remained harsh.

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