Spain, Eurogroup aim for more realistic deficit cuts

 

Euro zone finance ministers believe that Spain's budget cuts should take into account its weak economy, Spain's economy minister said on Tuesday, adding Madrid would work to limit economic recession.

The IMF forecast yesterday that Spain will miss its deficit targets in 2012 and 2013 as the economic contraction next year will be much bigger than the Spanish government has forecast.

"There was a positive evaluation (by euro zone finance ministers of Spain's 2013 budget on Monday), of Spain's economic policy and the need to carry out a fiscal adjustment that is sensitive to the economic situation in the country," Luis de Guindos told reporters at a EU finance ministers' meeting in Luxembourg.

The IMF said in its fiscal monitor report that the country's deficit would reach 7% of GDP in 2012 and 5.7% in 2013, compared with EU-agreed targets of 6.3% of GDP this year and 4.5% of GDP next year.

"The only thing I can say (about the IMF's forecasts for Spain) is to try to avoid that they happen," de Guindos said.

"Logically, we are working on the basis that such negative forecasts are not met," he said.

The government has based its budget plan for next year on a recession of 0.5% while the IMF forecast a recession of 1.3% in the country in 2013 after a 1.5% contraction in 2012.

Asked if euro zone finance ministers pressed Spain for more budget deficit cuts on Monday night to make sure the targets agreed with the EU are met, de Guindos said: "No, absolutely not."

The IMF also said that Spain's debt will jump to more than 90% of GDP in 2013 as the country recapitalises its banking sector, but de Guindos again played down the forecasts.

"More than the projection, which is important, is to see how we are closing the Spanish macroeconomic imbalances."

Asked if the Spanish government would ask for financial aid from the euro zone, de Guindos said:

"At this moment, the Spanish government will continue with reforms, continue with cutting the public deficit and after that dissipate all the doubts that exist about the future of the euro zone."