Spain's government met regional officials on Wednesday to agree ways to cut state healthcare, an attack on a treasured welfare system that will fuel anger among a population weary of EU-enforced austerity to tackle a ballooning deficit.

The conservative government has warned Spaniards they would have to start paying more for prescriptions, part of the welfare system that has provided state-financed health and education since the country's transition to democracy began in the 1970s.

Although protests against cuts have been mostly peaceful and polls show that many Spaniards are resigned to reining in costs to fight the debt crisis, violent flashes during a recent national general strike may suggest patience is wearing thin.

It's time we end the culture of everything for free, Industry Minister Jose Manuel Soria told Spanish state television when asked whether the government planned to force pensioners to pay for medicines.

Despite promises to not touch the welfare state before an election in November last year, the conservatives say they have been forced into a U-turn on health and education and must save 10 billion euros ($13.14 billion) this year.

Health Minister Ana Mato met regional leaders in Madrid on Wednesday to decide on how best to reform the system.

Some media said pensioners, who receive free medicines, would have to pay 10 percent of their drugs bills while people with jobs would have to pay 50-60 percent, depending on income.

On Monday, Education Minister Jose Ignacio Wert said classroom sizes would increase by up to 20 percent and the number of teachers' working hours would also rise.

The estimated savings - 3 billion euros a year in state schools and 7 billion euros in the health service - are set to be approved at the government's weekly meeting on Friday.

Spain has returned to centre of the euro zone debt crisis in the past few months on concerns Prime Minister Mariano Rajoy is unable to control the highly devolved regions' spending and deflate one the bloc's highest public deficits.

Spain's central government may intervene in regional finances in return for financing help as soon as next month if they do not meet the tough line needed to help allay fears over the country's debt, a high ranking source said.

CONTROL REGIONAL SPENDING

Rajoy's fight against regional debt could become as symbolic as British former prime minister Margaret Thatcher's crushing of trade unions in 1980s, Goldman Sachs said in an investors note. It said it expected a final 2012 deficit of 6.7 percent of GDP and warned against short term measures.

While the Spanish government may have a genuine intention to implement reforms, it needs to become more effective in enacting them and articulate a strategy that looks beyond the near term, it said.

Investor concerns over the euro zone's fourth largest economy, soothed by a trillion euros of cheap liquidity from the European Central Bank, were set on edge in March after Rajoy tore up the deficit target agreed with European partners.

The cost of financing 10-year Spanish debt jumped to 5-month highs on Monday, close to the unsustainable levels, while the cost of insuring against default hit highs, though market pressure eased after a successful auction on Tuesday.

Spain's 17 autonomous regions control their healthcare and education budgets and the conservatives say reform is necessary after they overspent in 2011. The healthcare system faces some 15 billion euros in unpaid debts, the conservatives say.

Public health spending was $3,067 per capita in 2009, below an average of $3,361 per capita in the OECD club of wealthy nations, based on the latest available data.

Health spending has a significant impact on the regions and the reform is part of current efforts to reach the goal of making public finances sustainable, Economy Secretary Fernando Jimenez Latorre told parliament.

Spain has said it will reduce its public shortfall, which hit 8.5 percent of gross domestic product last year, to 5.3 percent of GDP this year and 3 percent in 2013.

However, many economists say this will be impossible as the economy slips into its second recession since 2009 and families and businesses rein in spending to pay down debt despite the central government committing to 27 billion euros of savings in the 2012 budget. ($1 = 0.7610 euros)

(Additional reporting By Inmaculada Sanz; Editing by Julien Toyer and Elizabeth Piper)