The news out of Spain is that their budget deficit was surprisingly bigger than anticipated after they implemented more austerity this year: massive social spending cuts and higher taxes in the context of over 20% unemployment and rising.
Economist Mike Norman says the new government announced that even more austerity is coming in order to cut the deficit. See the pattern?
Austerity only makes deficits bigger by decreasing aggregate demand and output, and aggravating unemployment: thus with higher unemployment that means lower tax revenues and higher transfer payments = bigger deficit.
Spain, Portugal, Ireland, Italy and Greece must be allowed to spend more to fight unemployment and must maintain higher deficits, not lower.
These countries need to grow their economies back to stability, and I believe this entails a transition out of the euro and an orderly default on foreign debts.