The Spanish government which moved quickly to cut its Fiscal Deficit following the Greek crisis is now facing a major challenge from the Spanish Unions.The government has cut public sector salaries and is trying to reform the rigid labor laws.The hand of the government has been forced by the Ratings Cut and high yields on Spanish bonds.While the Government debt is not high at  59% of the GDP,the private sector liabilities are very high.The Spanish Caja’s have already been exposed as the weak underbelly of the Financial Sector.Note Spain is already facing very high unemployment of 20% a direct consequence of the bursting of the Real Estate Bubble.This austerity plan has moved the problems from the Financial Sphere to the Social Sphere with high chances of  a General Strike (first since 2002).The Opposition Party is capitalizing on the unpopularity of the measures with its ratings now 10% higher than the Ruling Party.Unlike Greece,Spain is a very large economy and disability there will have a much large affect on Europe and the World Economy.

Zapatero Faces Down Strike as Wage Cuts Rile Allies  – Bloomberg

Spanish civil servants went on strike in the largest walkout since Prime Minister Jose Luis Rodriguez Zapatero came to power as efforts to tame the euro area’s third- largest deficit rile the Socialist premier’s core supporters.On average 75 percent of the 2.5 million public workers backed the strike, said Comisiones Obreras, one of Spain’s two biggest unions. The walkout may be a prelude to a general strike that unions have threatened over the government’s plan to overhaul labor rules that may make it easier to fire workers in a country where the unemployment rate has reached 20 percent.

The UK government is also following its mainland European partners in drafting an austerity policy.The new Right Wing government has called for drastic cuts to reign in the high fiscal deficit as United Kingdom also faces somewhat of a similar fate as Greece if it continues in its  Keynesian spending ways.Fitch has warned the government of the dangers of the dangerous cocktail of high fiscal deficit and high sovereign debt.Europe as a whole with the exception of Germany faces a double whammy of  slow growth and high debts/deficits.The best outcome for these countries is a few years of slow or no growth.

U.K. fiscal challenge ‘formidable,’ says Fitch – MarketWatch

Britain’s fiscal challenge is “formidable” and warrants a faster pace of deficit reduction than was outlined in the April 2010 budget issued by the previous Labour government, Fitch Ratings warned on Tuesday. Fitch said a more ambitious deficit-reduction plan, with borrowing 1% lower than in the April budget through the medium term, would “go some way to restoring ‘fiscal space’ or a cushion against future shocks.