Spain's government on Friday approved a sweeping reform package designed to reduce its recession-hit economy's reliance on the construction sector and usher in a more sustainable growth model.

Spain's government on Friday approved a sweeping reform package designed to reduce its recession-hit economy's reliance on the construction sector and usher in a more sustainable growth model.

"The growth model based on construction was bad for the economy and for the environment," Economy Minister Elena Salgado told a news conference after the "Strategy for Sustainable Economic Growth" was passed.

The reforms include measures to streamline bureaucracy,

The plan is designed to take effect next year and transform the Spanish economy, Europe's fifth-largest, over the next decade.

To promote the goals of the strategy the government approved the creation of a new EUR 20-billion (USD 30-billion) investment fund that is funded partially by the state and partially by Spanish banks.

Spain's gross domestic product contracted 0.3 percent in the third quarter from the second, its fifth straight quarterly decline, even as the entire eurozone officially joined the United States and Japan in emerging from recession during the same period.

The Spanish economy has proved especially vulnerable to the global credit crunch because growth relied heavily on credit-fuelled domestic demand and a Spanish property boom boosted by easy access to loans that has collapsed, leaving around one million new homes unsold.

It got around 20 percent of its output from the property and construction sectors in 2007 before the housing bubble ended, according to government data.

Spain's unemployment rate has soared to nearly 18 percent, the highest level in Europe, with construction workers leading the job losses.

The country accounts for roughly half of the rise in the number of jobless in the 16 countries sharing the euro currency over the last year, according to the European Union's statistics office Eurostat.

The conservative opposition Popular Party (PP) has accused the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero of having no coherent strategy for lifting Spain out of its worst recession in decades.

As the recession has dragged on, the PP has overtaken the Socialists in opinion polls and now has a slim lead over the ruling party.

PP leader Mariano Rajoy dismissed the unveiling of the new strategy as "the umpteenth announcement in a series of announcement that never end, that don't resolve anything and only makes them worse."

The party argues that with Spain's public deficit expected to hit nearly 10 percent of GDP this year, the government will not have the money to achieve its economic goals.

Spain's main business federation argues the government needs to lower the cost of firing workers in order to encourage companies to hire and give the economy a much-needed boost but Zapatero has repeatedly refused to take any steps to reduce workers' rights.

Speaking in Madrid on Monday, European Central Bank President Jean-Claude Trichet said Spain needed to find a new engine of economy growth.

"Spain was on a pattern of growth in the run-up to the (global financial) crisis that was not sustainable," he said.

Spain accounts for just three percent of "high-quality" European exports, compared with 12 percent for France or almost a third for Germany, according to a recent study by the Paris-based CEPII institute.