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Spain lowers spending cap on 2012 budget

Source: Reuters - Sat 25th Jun 2011

Spain's government lowered the spending cap for its 2012 budget on Friday from the previous year, treading a fine line between reducing its deficit and coaxing fragile growth in a struggling economy.

The spending cap for 2012 was set at 117 billion euros, 3.8% below the 2011 cap, the government said in a news release.

The Socialists must gain the support of smaller political parties to pass the budget, against a background of street protests against strict austerity measures and growing market tension Spain may stray from its deficit-cutting targets.

Spain's challenge is to stick to deficit targets, aimed at warding off fears it may stumble into a debt crisis like Greece, yet not further hobble an economy that has been in recession or stagnated for almost 3 years.

The minority government faces general elections by March next year, and as long as the prime minister does not call an early election, rumoured to be under consideration, parliament must pass the budget by the end of the year.

The opposition Popular Party (PP) will inherit the budget if - as expected - it wins the next general election but could then make its own changes by passing new laws.

Last year the government announced public spending cuts of 7.9% to 122 billion euros as it passed a raft of austerity measures to reassure nervous investors on its rapidly expanding deficit.

Spain's public deficit was 9.2% of GDP in 2010, and the government aims to cut that to 6 percent this year and to 3 percent by 2013.

The government expects the economy to grow by 1.3% this year and 2.3% in 2012, above most economists forecasts.

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