Rajoy reveals Spain's deficit fell below 7% ©Gianfranco Tripodo Prime Minister Mariano Rajoy insists austerity is working despite the pain inflicted on Spaniards Mariano Rajoy revealed on Wednesday that Spain's budget deficit for 2012 fell to below 7 per cent of gross domestic product, a reduction that the prime minister claimed was "without precedent" in the country's history. Madrid is still widely expected to fall short of the official deficit target set by the European Commission, which stands at 6.3 per cent. However, Brussels has already indicated that it will give governments more time to comply with their budget goals, especially in cases where a country has undertaken a serious effort to bring down its deficit. In his annual speech on the state of the nation, Mr Rajoy conceded that the austerity measures and structural reforms pursued by his government had inflicted pain on many Spaniards. But he insisted that his policies were working, and that the country was gradually emerging from the prolonged economic downturn that started in 2007. Spain's budget deficit was 9.4 per cent of GDP in 2011, according to Eurostat's most recent data, compared with Mr Rajoy's first estimate of 8.5 per cent reported about a year ago. The yield on Spanish 10-year benchmark bonds fell six basis points to 5.14 per cent in Madrid on Wednesday, compared with a euro-era high of 7.75 per cent in July, before Mario Draghi, president of the European Central Bank, pledged to safeguard the euro. "A year ago, nobody looking at Spain from outside would bet on it," Mr Rajoy said. Today, no one would say we could leave the euro. Ignacio Conde-Ruiz, an economist at the Applied Economic Research Foundation in Madrid, said: "The question is whether this deficit number may be revised in September, as was done last year. There are a lot of doubts about the adjustment in the regions which won't be cleared up until the full breakdown has been published. Speaking before the parliament, Mr Rajoy also said he would soon present a new series of fiscal reforms to boost job creation for young people and reduce the tax burden on small and medium-sized companies. The government will launch a second wave of reforms that will target growth and job creation . . . It will be measures of economic stimulus," he said. The prime minister said small companies would be given the possibility to delay payments of the consumer tax they collect on behalf of the state and they would also be able to tap new credit lines backed by the Treasury. Mr Rajoy also said he would soon propose bills to regulate more strictly the financial activity of political parties and reform criminal law to enforce tougher sanctions against cases of corruption among senior political officials. His ruling People's Party has been buffeted since January by media reports alleging its former treasurers operated a slush fund with donations from construction industry executives that were then given to Mr Rajoy and other party leaders.