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Spain on track to meet 2010 debt target after Q3

Source: Reuters - Fri 17th Dec 2010

Spain's debt-to-GDP ratio rose in the third quarter but was in line with official forecasts, putting one of the countries in the firing line in Europe's debt crisis on track to meet or beat year-end targets.

Data from the Bank of Spain showed the ratio of public debt to gross domestic product, or GDP, rose to 57.7% in the third quarter, up from 56.8% in the second.

That means a government target of 62.8 percent this year would likely be met, or even undershot.

Spain has faced less examination over its debt to GDP ratio than other countries given the European average stands at around 80%, with Greece's expected to rise to more than 140% this year.

But a higher public deficit and weak growth prospects have led to market pressure that could eventually force it to seek a financial rescue if financing costs spiral higher.

Central bank data also showed that debt in Spain's autonomous regions - a large part of official spending - rose by 27% in the third quarter compared with the same quarter a year ago, to 107.6 billion euros.

Debt for both the central government and the autonomous regions combined was 611.2 billion euros, up 16%.

Tullia Bucco, economist at UniCredit said there had at least been a moderation in the rise of regions' debt.

"While the pace of increase (as a percentage of GDP) in the first three quarters of 2010 has been more sustained compared with last year, at least in the third quarter of 2010 there was a moderation in the pace of debt increase, broadly in line with the one observed at the end of 2009," she said.

On December 15 ratings agency Moody's put Spain on review for a possible downgrade citing high funding needs facing the country, but also concerns over the region's finances.

Prime Minister Jose Luis Rodriguez Zapatero tried to calm nerves over the outlook for the regions saying they remained strictly under the control of the central government and were on course to meet their deficit cutting targets.

"It's normal that debt from the autonomous regions has increased, but I should add that the autonomous regions will meet their deficit objective for 2010 of 2.4%," he said in Brussels on Friday after a summit of European Union leaders.

He added the regions were unable to issue debt without the permission of the central government.

Economy Minister Elena Salgado is due to present the financial accounts of the autonomous regions next week in an attempt to ward off investor nerves that the regions could hurt Spain's chances of meeting its ambitious deficit targets.

Spain aims to slash its deficit to 6 percent in 2011 from 11.1% in 2009.

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