Spain mulling bailout request

Spain's Prime Minister Mariano Rajoy pauses during a news conference at the Moncloa Palace in Madrid Friday Aug. 3, 2012. / AP Photo/Paul White

(MoneyWatch) Spanish Prime Minister Mariano Rajoy has said for the first time that he is considering asking the European Central Bank for a bailout. Rajoy said he needed first to know what conditions would be attached and what form the rescue would take before making any decisions. The government also announced a new round of budget cuts today aimed at saving $125 billion over three years.

Rajoy's comments mark a complete reversal for the government, which has been insisting for months it wouldn't need foreign aid.

"I want to know first what these measures are, what they could mean, and if they are adequate ... and then in view of the circumstances we can make one decision or another, but I have not taken any decision," Rajoy said, in his first appearance at Spain's weekly government press conference since taking office seven months ago. "I will do what I consider to be in the general interest of Spaniards."

Reuters, citing confidential sources, said it would likely be several weeks before any decision might be made.

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Rajoy's comments come just a day after ECB President Mario Draghi said the central bank would not begin buying government bonds, unless a formal application for aid was made. He said ECB action would come with unspecified conditions attached. Last month Spain announced a package of $79 billion of tax hikes and spending cuts to comply with tough European Union and International Monetary Fund demands for economic reform.

There are reportedly concerns the government might be forced to further cut the state pension system. Rajoy, who made a campaign pledge not to do this, has already had to do many things he said he would not do in order to stay in compliance. Support for the government has fallen sharply, especially in recent weeks when hundreds of thousands took the streets to protests against austerity steps.

Despite this the government unveiled its latest austerity measures today - a package of spending cuts and revenue increases aimed at saving $125 billion over three years. The measures are expected to save $16 billion this year, $47.8 billion in 2013 and $61.4 billion in 2014. The total is 57 percent greater than previously forecast and Spain's regional governments will be required to contribute to the savings. Some of those governments have already had to suspend paying employees until they can find the money to do so.