Spain Pays Price for Smaller Deficit

MADRID—Spanish Prime Minister Mariano Rajoy said the government significantly narrowed its budget deficit last year, a sign that some of Europe's toughest austerity measures are yielding results.

Answering questions in Parliament on Wednesday, the prime minister said the deficit narrowed to 6.7% of gross domestic product in 2012 from 8.96% of GDP in 2011. The result vindicated the government's focus on overhauling the country's ailing finances since it came to power at the end of 2011, he said.

This focus has come at a price. Tax increases and spending cuts have helped to deepen Spain's recession and push its unemployment ...

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