Spain's centre-right government will announce billions of euros in savings measures on Friday, using its first decrees since sweeping to power at November elections to give the nation a foretaste of tougher austerity to come. Prime Minister Mariano Rajoy has pledged to turn Spain's battered economy around by meeting tough budget deficit reduction targets while reforming a broken labour market and pulling the country out of a prolonged slump.

But since he has had only a week to view the books left by the Socialists and the 2012 budget has still to be decided, the measures to be announced after the weekly cabinet meeting will be just the start with lots of pain further down the road. The Economy and Treasury Ministries denied reports earlier in the week they would announce 4 billion euros of cuts on Friday. Spain has been under intense market scrutiny about its ability to control public finances and Madrid has seen risk premiums soar to record highs linked to contagion fears after Greece had to apply for an international bailout in May 2010