Spain on Friday proposed cutting government spending by nearly 4 per cent next year to reduce a bloated deficit that has investors worried that the country may become the next European country to need a bailout.

Finance Minister Elena Salgado said central government spending in the proposed 2012 plan will be €117.4 billion, down 3.8 per cent from this year.

She stressed this does not include spending by regional governments, many of which are running deficits above established targets and have become a source of concern as Spain tries to get its public finances in order.

Salgado said Spain remains committed to reducing its deficit from 9.2 per cent of GDP last year to six per cent this year and 4.4 per cent in 2012, then down to the EU limit of 3 per cent in 2013.

The 2012 budget has to be passed by the end of the year. Prime Minister Jose Luis Rodriguez Zapatero runs an increasingly weak minority government and will need help from small parties to get it approved.

Zapatero has said he wants to serve out his full term and call general elections in March 2012, but he is under pressure from some in his party to bow out and call early elections.

Zapatero’s Socialists were trounced in local and regional elections last month as voters vented anger over a 21.3 per cent jobless rate. Economic growth is expected to be only 1.3 per cent this year and 2.3 per cent in 2012, according to government projections many economists consider optimistic.

The opposition conservative Popular Party is favoured to win the next general election, which would end eight years of Socialist rule.

Also Friday, the government removed a temporary restriction that had lowered the highway speed limit from 120 kilometres per hour to 110.

The reduction was enforced in March as oil prices shot up because of the uprisings in Libya and elsewhere in the Arab world. Officials said on Friday the limit could be restored because oil prices are now a bit lower and projected to keep falling.

“Under these circumstances, we feel the measure no longer makes sense,” Deputy Prime Minister Alfredo Perez Rubalcaba told reporters after a Cabinet meeting. He added that the months of slower driving had saved Spain €450 million in its balance of payments.

Also, Spain’s key tourism sector was set to grow by up to 8 per cent during the summer months, said Rafael Gallego, president of the country’s travel agency association.

Gallego said the uncertainty currently affecting other traditional Mediterranean tourist destinations such as Greece had impacted Spain positively.

The country’s toughest competitors for European tourism were currently France, Britain and also Russia — which was due for even faster growth than Spain — said Gallego.