Spain's prime minister has announced he will slash civil servant salaries by 5% and withdraw a flagship child benefit payment in a desperate bid to cut costs.

Unemployment in Spain stands at 20% - twice the eurozone average.

More than 400,000 families are set to lose the 2,500 euro (£2130) payment to new mothers known as the "baby cheque" that was introduced three years ago in an attempt to raise the country's birth rate.

The benefit cut was among a series of measures announced by Jose Luis Rodriguez Zapatero, the head of the Spanish socialist government, as he attempts to stop his indebted nation from sliding into a debt crisis like the one being experienced by Greece.

Hours before revealing the cuts, Mr Zapatero took a call from US President Barack Obama who urged him to take "resolute action" to strengthen the Spanish economy.

Spain has the eurozone's third-largest deficit after Ireland and Greece, and saw its credit rating cut last month.

The Spanish government is aiming to reduce its deficit from 11.2% of GDP last year to 9.3% in 2010, and eventually to 3% in 2013.

Other new cutbacks include a suspension of index-linked increases in retirement pensions, a drop in overseas aid and a reduction in state investment.

Civil servant salaries will be subject to a 5% reduction this year and frozen in 2011, while some 13,000 public sector jobs will be lost altogether in a drive to meet EU deficit targets.

"We have to make a singular, exceptional and extraordinary effort to reduce our public deficit and we have to do it when the economy is starting to recover," Mr Zapatero told parliament.

The announcement came two days after eurozone governments, the European Central Bank and the IMF agreed a £433bn rescue package to stabilise the euro in exchange for pledges from European countries to cut their deficits.

Spain enjoyed more than a decade of rapid growth fuelled by EU regional aid and low euro interest rates, and long boasted a healthy budget balance and low debt.

But public finances were severely hit by the collapse of a construction bubble in the 2007-8 credit crunch.

The economy has lost competitiveness and unemployment stands at 20% of the workforce.

In the Telegraph article on the same,
"Aid to the regions will be slashed and infrastructure projects will be put on ice."

Good - that should knacker the A7 El Perello-La Jana section for a while then!