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Spain Warns Deficit Could Grow

A man walks past a shop selling Spanish fans with a sign reading 'Liquidation' during early sales in Madrid, January 2, 2012

A man walks past a shop selling Spanish fans with a sign reading 'Liquidation' during early sales in Madrid, January 2, 2012

Spain warned Monday that the government's deficit for last year could be even higher than it predicted just days ago.

Spain's new conservative government last week projected the 2011 deficit at 8 percent of the country's annual output of goods and services. But Monday, Finance Minister Luis de Guindos said the deficit could be even bigger.

His assessment came as the government said that later this week it would unveil new austerity measures on top of the more than $19 billion in tax increases and spending cuts it had already announced. Guindos said the government will promote a "very aggressive reformist agenda" over the next several weeks.

One financial investment manager, Pascal Bernachon, said Europe's governmental debt crisis remains unresolved as the new year starts.

"The problems of the eurozone remain identical [to last year's]. Spain dampened the mood last week with its announcement that it could not meet its targets on the deficit, so because of that it has had to create more austerity measures," said Bernachon. "So, going into 2012 the European zone uncertainties remain and it's necessary to resolve these problems and reduce the deficits."

The 17-nation bloc that uses the euro currency is seeking to impose tighter financial controls over spending by individual governments, an effort aimed at ending the continent's two-year debt crisis. Greece, Ireland and Portugal have already needed to secure international bailouts, but financial experts are worried that possible defaults by much larger Italy and Spain could overwhelm Europe's ability to pay back their debts.

With a weak Spanish economy and an unemployment rate of more than 21 percent, voters ousted the socialist government in November. Now, the country could face years of tight government spending. Some analysts say the Spanish economy could contract by more than 2 percent this year.

Some information for this report was provided by AP, AFP and Reuters.