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Zapatero : deficit reduction is "on track "

Source: Reuters - Fri 10th Sep 2010

Spain is on track with efforts to reduce its budget deficit and needs no additional cuts to meet its goals, Prime Minister Jose Luis Rodriguez Zapatero said in a radio interview on Friday .

The country can maintain current unemployment benefits and social programmes if it sticks to its other planned cuts, he said.

Zapatero imposed austerity measures and pushed through labour reform after turmoil on financial markets in May and June, seeking to convince investors Spain would not have to follow Greece in appealing for an international bailout.

Spain's deficit soared last year to 11.2 percent of gross domestic product and the government has pledged to trim it to 3 percent by 2013 in line with European Union guidelines.

Zapatero said that it would take time for the country's tepid economic growth to pick up after it emerged from a deep recession at the start of 2010. Some economists believe it could slide back into recession this year or next.

"It is going to be difficult for growth to become vigorous and it is going to be difficult for the growth to also include clear recovery in employment" he told Radio Ser.

Zapatero said energy, pension and other reforms were needed to drive growth and he pledged to push them through while acknowledging they would be "politically difficult". The ruling Socialists are seven seats short of a majority in Spain's lower house of parliament and are expected to seek support from the Basque National Party and other centre-right parties to pass next year's budget.

The prime minister said that if the economy improves and Spain's bond prices rise, which would compress the cost of borrowing, the government could still find room to roll back some austerity measures.

Spain has already backtracked on some austerity measures but analysts say it will have to be careful not to spook markets still nervous over its finances.

He said that by focusing cuts in public sector wages and infrastructure projects, Spain can maintain benefits for the 20 percent of workers who are unemployed, the highest jobless rate in the euro zone.

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