The Spanish parliament has decided that it has sanctioned a plan to cut public spending by 7.7 percent, which will form a key part of cruel budget plans for 2011 to be set out in September.

The plans will see public spending dropped down to 122 billion euros ($157.6 billion), excluding funds to Spain's autonomous regions, down from 132 billion euros in the existing year (2010).

The cut forms a vital part of the government's drive to cut its deficit to 6 percent by next year from 11.2 percent in 2009 and ease market worries that have dogged euro zone periphery countries this year.

The public spending plan was passed with 170 votes in favor, 166 against and three abstentions.

The spread declined to 160 basis points, down from a high hit in June of 240 basis points, but still greater than the 70 basis point difference seen during April 2010.

While talking to reporters, Economy Minister Elena Salgado said, “A credible reduction in public spending will help to bring the cost of financing down and stimulate private demand.”

The spending cuts will form part of the government's budget planss, which will be a key test for the ruling Socialist party as it will require the support of other parties with the aim to pass them during the final quarter of the year.