Spain\'s incoming prime minister Mariano Rajoy vowed Monday to slash the public deficit by 16.5 billion euros to rescue the economy from crisis. With five million people unemployed and warnings of a fresh recession looming, Rajoy gave the first details of how he plans to create jobs, clean up banks and reassure investors that he can stabilise Spain\'s finances. Only pensions will escape the knife, he said in a speech to parliament ahead of his investiture, also vowing to complete a purge of Spain\'s financial sector and guarantee that the government balances its budget. \"We will have to reduce by 16.5 billion euros ($21.5 billion) the shortfall between revenues and spending for the whole public administration,\" he said. \"This is our commitment and we are going to achieve it.\" Rajoy\'s speech was keenly watched by markets worried that the debt crises in Greece and Italy may spread to Spain and across the eurozone. The Madrid stock market closed 0.60 percent higher. He reiterated his pre-election vows to make deep cuts and sweeping reforms, filling in some of the details for the first time since the November polls. \"We will urgently undertake a series of measures to allow us to reduce costs and improve the functioning of the administration,\" he said. This will involve \"resizing the public sector and its personnel,\" getting rid of various public entities and a freeze on hiring in the public sector. He set stable public finances as one of three policy priorities, saying his first legislation will be a law to oblige Spain to balance its budget. The second big policy is to finish cleaning up Spain\'s banks, which were brought low by the bursting of a construction bubble in 2008 and then hit by the global financial crisis. Rajoy said banks must clean up their balance sheets by selling buildings that are finished and giving realistic valuations to other construction-linked assets. Figures from the Bank of Spain on Monday showed that the ratio of bad loans on the books of Spanish banks -- mainly mortgages -- reached a 17-year record high in October, at 7.42 percent or 131.9 billion euros ($172 billion). \"A second wave of restructuring is inevitable: more mergers, more capital requirements, a change of model and a change of the system of regulation,\" Rajoy said. Thirdly, he promised structural reforms, including to the labour market, to make the economy more competitive. The Socialist candidate whom Rajoy beat in the election, Alfredo Perez Rubalcaba, accused him of wanting to dismantle Spain\'s welfare state. \"We disagree with much of what you have said and also with much of what you are going to do but have not said,\" Rubalcaba said in parliament in a response to Rajoy\'s speech. \"The policies of fiscal consolidation lead to our growth being strangled.\" Since Rajoy\'s conservative Popular Party won a landslide election victory on November 20, pressure has risen to announce strong steps to cut the deficit and reassure the markets on which Spain borrows money to finance its debt. Deficit targets imposed by the outgoing government have already prompted cuts in healthcare and education services in some regions, sparking street protests. Rajoy had vowed to stick to Spain\'s targets to cut the deficit to 4.4 percent of gross domestic product in 2012 and 3.0 percent of GDP -- the EU limit -- in 2013. He acknowledged on Monday that the country may miss its deficit target of 6.0 percent this year. He said he did not have a forecast figure for economic growth or the deficit this year, but added that if it reaches 7.0 percent, \"we will have to cut 10 billion euros more.\" As for growth, he cited only the outgoing government\'s last official forecast of 2.3 percent in 2012, \"which as we all know is not going to be met\".