The Spanish government announced budget cuts and tax increases totalling €40bn for next year, as part of a reform package that could pave the way for an EU bailout and sovereign debt purchases by the European Central Bank.

Luis de Guindos, finance minister, said his government still did not know what conditions the EU might impose in return for a sovereign bailout, which the ECB has set as a precondition for buying Spanish debt in order to lower borrowing costs for Europe’s fourth-largest economy.

In June, the EU promised to inject up to €100bn into Spain’s foundering banks. The results of an independent audit of the country’s banks will be released today determining how much of that money Madrid will actually draw upon. Senior officials in both Madrid and Brussels emphasised that the reform programme announced yesterday was in line with EU recommendations issued in July. Officials said the close co-ordination between Spanish and EU authorities was part of a carefully calibrated strategy to meet the conditions likely to be demanded by eurozone lenders if Mariano Rajoy, Spanish prime minister, is forced to request the eurozone’s sovereign bailout.