EU ministers talk austerity

But as they discussed how to reduce swollen budget deficits, Spanish public service workers staged a one-day strike which underlined the problems governments face implementing austerity measures such as spending cuts that will bring down wages.

The Fitch credit rating agency said Britain faced a formidable challenge to cut government borrowing and Hungary, which is also an EU member state that does not use the euro, tried to reassure financial markets over its debt problems.

The EU finance ministers sent markets a message that they are serious about controlling debt, in addition to adopting an anti-contagion plan that can be deployed to protect countries that follow Greece into financial difficulties.

We are going to accelerate fiscal consolidation, Spanish Economy Minister Elena Salgado told a news conference after chairing the ministers' meeting in Luxembourg, committing the EU to tougher budget discipline.

There is a general sense around the table that everybody needs to undergo fiscal consolidation. We have markets that are not at the moment convinced, said Greek Finance Minister George Papaconstantinou.

European Monetary Affairs Commissioner Olli Rehn said Europe's recovery from the global recession of 2009 would gain momentum this year and that now was the time to start moving from fiscal stimulus to fiscal exit.

That justified the tougher budget strategies of countries such as Spain and Portugal, and also of countries less in need of drastic measures such as Germany, he said.

PAIN IN SPAIN

In Spain, labor unions said about three out of every four of the country's 2.3 million public employees stayed away from work to protest over austerity plans, although the Socialist government said the strike had been less well supported.

Public sector workers face average wage cuts of 5 percent for this year and a freeze for 2011 as part of a plan to cut the budget deficit to 9.3 percent of gross domestic product this year, from 11.2 percent in 2009, and then to 6 percent in 2011.

There must be a way to solve this crisis without hurting people and pensioners. They're cutting my wages and ... everything is more expensive, said teacher Marisa Madrid.

A spokesman for the British government said it agreed more needed to be done to tackle its debt problems.

Hungarian Prime Minister Victor Orban sought to calm markets by making a pledge to cut wages and some taxes but raise others to ensure deficit reduction stayed on target.

The weakened euro enjoyed some reprieve on Tuesday but markets kept governments under pressure to show good on debt control efforts.

The premium investors demand to hold sovereign bonds rose for France and Italy, and to a euro-lifetime high for Spain, before easing somewhat.

There is market uncertainty due to uncertainty about fiscal policy. The cure must be responsible fiscal policy, Swedish Finance Minister Anders Borg said.

The countries that have contributed most uncertainty should be the ones that are most ambitious when it comes to solving those problems and probably it will be Spain and Portugal.

Spain and Portugal, struggling to dispel market concerns that they may suffer debt repayment difficulties, announced further austerity measures in mid-May in return for the protection of the EU's vast anti-contagion plan.

CONCERN OVER BULGARIA

Finance ministers from the 16 countries that use the euro met late into the evening on Monday to finalize the operational aspects of the plan, which they say could allow access to up to 750 billion euros ($1 trillion) if needed to rescue struggling economies.

They were joined on Tuesday by ministers from the rest of the 27-state EU to discuss extra belt-tightening.

They also approved plans to grant the EU statistics agency more power to audit national budget reports after the experience of years of grossly understated Greek figures that were at the root of the current crisis.

European Commissioner Rehn voiced concern over Bulgaria and said Sofia would be the first port of call once Eurostat had its new powers.

Greece became the first country in 11 years of monetary union to require financial rescue and governments have been struggling for months to prevent other countries being shut out in similar fashion from nervous debt-funding markets.

The strike in Spain served as a test of opposition to the government's plans to shave another 15 billion euros from the budget this year and next, one day before the government presents a draft labor-reform package to unions and business.

Despite its problems, Europe won words of support overnight from the heads of the International Monetary Fund, Dominique Strauss-Kahn, and the U.S. Federal Reserve, Ben Bernanke.

Bernanke said the anti-contagion package amounted to a lot of money and enough to protect Greece, Portugal and Spain from volatile credit markets for a number of years, even if markets were yet to show they felt fully reassured.

European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone, preserve the European project, and avoid financial problems that would certainly arise, Bernanke said.

The debt crisis has shaken global markets, but the euro zone is not the only place suffering from a surge in debt as the world emerges from recession. The United States and Japan are also deep in the red, as is Britain.

(Additional reporting by Brian Rohan, John O'Donnell, Jan Strupczewski, Marcin Grajewski; editing by Timothy Heritage)