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Brussels lowers Spainís public deficit forecast

Source: El Pais - Tue 3rd May 2016
Brussels lowers Spainís public deficit forecast

The European Commission does not expect Spainís public deficit to drop below 3% of gross domestic product (GDP) before 2018.

The imbalance will be 3.9% this year, and 3.1% in 2017, according to the spring report that the Commission presented on Tuesday.

Spain recently announced that its 2015 deficit was in the 5% range, amply exceeding its target of 4.2% agreed with the European executive for last year.

While Brusselsí expectations with regard to economic output are almost identical to the governmentís (Madrid is forecasting 2.7% growth in 2016 and 2.4% in 2017, while the EC posits 2.6% and 2.5%), it has differing views on the deficit.

Given the difficulty of bringing this figure down to target levels in time, Brussels will give Spain one extra year to do so. But it will also demand additional adjustment measures and initiate proceedings over Spainís continued failure to meet its deficit targets in recent years.

Even though such a proceeding could theoretically result in a hefty fine of over Ä2 billion, it will very likely be merely symbolic as long as Madrid formulates a petition explaining the reasons for the target miss.

Even if there are ultimately no fines, the Commission will demand further adjustment measures and exert added oversight. The Spanish government will have to file quarterly reports listing the progress being made.

The political instability in Spain, which has had an acting government since the inconclusive election of December 20 and is facing a fresh vote in June, has delayed EU decisions regarding the Spanish economy. Brussels is aware that an acting government cannot enforce controversial decisions, and new budget cuts just as Spain is emerging from a protracted crisis would be sure to create controversy at the domestic level.

With Spain in the middle of a fresh election campaign, Brussels is walking a fine line: it does not want to look like it is influencing the outcome of elections in a member state, yet it needs to act firmly to ensure that the Stability Pact is not mortally wounded.

Working in Spainís favor is the fact that the European Central Bank and the International Monetary Fund (IMF) are both asking for flexibility, and that there are other countries in a similar situation.

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