EU wants Spain to do more to get deficits relief

 

The EU opened the door on Thursday to giving Spain more leeway on this year's deficit targets but first wants an explanation of why they rose in 2011 and details of fresh austerity measures.

Although it now forecasts the euro zone economy will contract 0.3% in 2012 - making it hard for countries to stick with projections - the European Commission said debt-ridden countries like Spain must be ready to take further fiscal tightening measures.

It said it was waiting to see Spain's new budget, which is due in March and will be checked over by the EU's statistics agency Eurostar.

"Decisions will be taken once we have a full picture," EU Economic and Monetary Affairs Commissioner Olli Rehn told a news briefing.

"I expect the Spanish authorities to share all relevant information on the outcome of last year's budget, and the reasons for fiscal slippages, as well as their preparations for the budget for this year, in order to ensure the structural sustainability of public finances in Spain, in line with the stability and growth pact," he added.

The Commission is applying a twin-track policy with Madrid.

On one side, as reported earlier this week by Reuters, it may consider giving Spain and other countries softer deficit targets in 2012 in order to help them through the economic downturn.

But on the other side, it also stands ready to take action against the new centre-right government of Mariano Rajoy for delaying new budget cuts.

Three senior EU officials told Reuters last week that a final decision had yet to be made on these sanctions, but added the Commission had doubts about the deficit estimated figure for 2011 released by the new government.

DIALOGUE WITH THE COMMISSION

Rajoy said on Thursday he would engage with Brussels regarding the deficit target, given that Spain's economy will shrink this year.

The current target 2012 target stands at 4.4% of GDP and to cut it from an estimated 8% in 2011 would suppose unprecedented savings of about 40 billions euros from Madrid.

This is at the same time the Commission is forecasting Spain's economy to shrink by 1.0% this year.

"All I can say is that we will speak with the Commission, but in any case Spain will meet its public deficit objectives," Rajoy said at a news conference in Rome where he was meeting Italian counterpart Mario Monti.

He also hinted that the European Commission's outlook for Spain's economy this year was unrealistic and that the Spanish government's 2012 growth forecast, which will come out in a few weeks, would not be as optimistic as the Commission's.

The IMF and Spain's central bank have forecast Spain's economy will contract by 1.7% or 1.5% this year.

Although Olli Rehn said there was a need for every country to take into account specific fiscal and macroeconomic risks when designing their policies, he insisted the focus would clearly remain on austerity in the next months.

Sources told Reuters earlier this week the Commission would only consider a leeway of a few decimal points on the targets which were agreed in 2009 and 2010.

"This is a ... decision supported by all member states, including Spain, and I trust that Spain will practise what it has preached in the context of this conclusion," Rehn said in reference to these targets.