Spanish Prime Minister Jose Luis Rodriguez Zapatero announced Wednesday new austerity measures in an attempt to calm the markets and save Spain from a total economic collapse, which could potentially lead to a major instability in the eurozone.

Economic measures include the freezing on pensions and a 5 per cent reduction of civil servant’s salaries. Starting from June, civil servant wages will be cut by 5 per cent and government wages will be cut 15 per cent. Overall Zapatero hopes to save 15 billion euros in the coming years, in a desperate attempt to cut the country’s deficit from 11.2 per cent in 2009 to 9.3 per cent this year.

Other reductions and cuts include the “baby cheque”, a payment of 2,500 Euros to new mothers, suspension of automatic inflation-adjustments to pensions and cuts to regional fundings of 1.2 billion Euros.

The new measures were announced a day after the Prime Minister spoke with US President Barack Obama who had called Mr. Zapatero to discuss the importance of “Spain taking resolute action as part of Europe’s effort to strengthen its economy and build market confidence”.

Zapatero explained that Spain “wanted to contribute, with our financial stability, to the stability of the euroSpanish Prime Minister Jose Luis Rodriguez Zapaterozone.

The announced measures come only days after Europe got together to announce a 750 billion euro package of loan guarantees.

Unemployment is currently at 20 per cent in Spain. The new austerity plan cut the yield on Spanish 10-year Treasury bonds to around 3.97 per cent from around 4.02 per cent. Investors were also rejoicing as Wall Street saw the Dow Jones index jump 1.4 per cent on Wednesday.

All eyes will be set on the reactions to Spain’s austerity measures. Will social unrest find its way to the streets of Spain’s capital? Will the images from Greece come to Spain?