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EU Holds Spain to Budget Goal as Rajoy Fights for Job

Source: Bloomberg - Tue 1st Mar 2016
EU Holds Spain to Budget Goal as Rajoy Fights for Job

The European Commission is holding firm on Spain’s budget targets, according to two officials with knowledge of its position, undermining Acting PM Mariano Rajoy’s efforts to present himself as the country’s best advocate in Brussels.

ABC newspaper reported Tuesday that Spain has a “verbal agreement” with the European Commission that will see the government granted an extra year to comply with its deficit-reduction target so long as it sticks to Rajoy’s economic policies. The newspaper didn’t say how it obtained the information. A spokeswoman for the Spanish Economy Ministry declined to comment when contacted by Bloomberg as did a spokesman for Jeroen Dijsselbloem, the head of the euro-zone finance ministers group.

Just because the commission hasn’t demanded a revised budget yet, that doesn’t mean Spain will be granted an extra year to meet its target, one European Union official said, asking not to be identified discussing confidential matters. Another said that Spain could potentially have been given a positive signal by one of the political appointees at the top of the EU’s executive but the commission won’t decide what to do about Spain’s deficit until after the final budget figures have been reported at the end of March.

“We have not taken such a decision,” EU spokeswoman Annika Breidthardt said Tuesday when asked about the ABC report at a press conference in Brussels. Any decision to change the EU’s stance “will be taken in due time.”

Cutting a deal with the EU now would offer Rajoy a boost as he fights to cling on to his job after losing a third of his lawmakers in December’s general election. While his People’s Party remains the biggest group in parliament, the prime minister has failed to recruit any allies to build a governing majority, handing the second-placed Socialists a chance to patch together their own alliance.

Coalition Efforts

Socialist leader Pedro Sanchez speaks in parliament later on Tuesday as he seeks lawmakers backing to take office with the support of the pro-market group Ciudadanos. ABC mocked Sanchez alongside the report of the budget deal. Its editorial said his bid lacked credibility and a cartoon portrayed him as Cinderella - suggesting he’d have to run away when his magic wears off at midnight.

Rajoy has managed to halve Spain’s deficit since taking office in December 2011, although he’s missed the targets set by the EU every year along the way.

Spain probably overshot its 4.2% target for 2015, even as the economy grew at the fastest pace since 2007. Last year’s shortfall was 4.5% of GDP according to the government’s initial estimate. This year the commission forecasts a deficit of 3.6% compared with a target of 2.8%.

In the past, the deals that Rajoy claimed he’d cut with European officials haven’t always materialized. In 2015 he said that he’d won support for his economy minister, Luis de Guindos, to replace Dijsselbloem as head of the Eurogroup only for de Guindos to be defeated in a ballot of euro-area finance ministers.

“Regardless of political developments, country reports are being prepared for all countries, including Spain, and countries will need to present their national reform programs and stability or convergence programs in a due time, in the case of national reforms program it’s in April, and this obligation holds regardless of the political developments,” EU Commissioner Valdis Dombrovskis told reporters in Brussels last week.

Recommended Reading :

* IMF raises growth forecast for Spain despite political uncertainty

* EC Forecasts more growth but higher deficit for Spain

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