Spain has slashed its economic forecasts and said it will take two years longer than promised to cut its swollen deficit in an acknowledgement that its harsh austerity measures had failed to bring its finances under control.
Revealing its latest batch of reforms and measures, Spain's economy ministry warned that the country's economy will contract 1.3% in 2013, instead of 0.5% as originally predicted, but would grow 0.5% in 2014.
The Economy Ministry also said that the country's deficit would fall to 6.3% of its annual gross domestic product for this year - more than 3% higher than the target set by the European Union, but much lower than 2012's figure of 10.6%. It said Spain would meet the EU target in 2016 - two years later than the country had originally promised in July 2012 - when it would hit 2.7%.
There was also bad news for the country's biggest problem - unemployment, which reached 27.2% in the first quarter. The proportion of Spaniards out of work will barely change over the next two years, the government said, ending the year at 27.1% and dropping just marginally to 26.7% in 2014.
Economy Minister Luis de Guindos said: "The results have not been good but they could have been much worse."
Spain's economy has been stuck in reverse since the collapse of the country's housing bubble in 2008 with the government running up a huge deficit - the highest among the 17 EU countries that use the euro- trying to prop up the country's banks. To rein in the government's finances, the country's conservative government has launched a series of financial and labour reforms and pursued a raft of spending cuts and tax increases.
But austerity has also inflicted severe economic pain. Slashing spending and raising taxes have proved to be less effective at reducing the deficit than initially thought - and perhaps counter-productive. As economies shrink, so do their tax revenues, potentially making it harder to close budget gaps.
Deputy Prime Minister Soraya Saenz de Santamaria denied there was a sense of failure within the government. She said: "Without a doubt much more needs to be done but the macroeconomic situation is better than it was at the end of 2011 or beginning of 2012."
Christine Lagarde, managing director of the International Monetary Fund, gave her backing to the Spanish government. She said: "I strongly support the Spanish government's objectives of restoring a sound fiscal position while securing a recovery and creating jobs.
"Today's announcement to pursue a more gradual consolidation path is a welcome step."