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Spain Sees Misunderstandings Over Budget Deficit Cleared Up

Source: Bloomberg - Sat 10th Mar 2012
Spain Sees Misunderstandings Over Budget Deficit Cleared Up

Spain expects to be able to clear up any misunderstandings with European partners over its decision to raise a budget-deficit goal by proving a commitment to controlling its finances, a government official said.

At a meeting of European finance ministers next week, Spain wants its partners to recognize that it has explained why its 2011 deficit target was missed on the previous government's watch and that it's committed to meeting next year's target of 3% of GDP, the official said yesterday, speaking on condition of anonymity. Spain is unlikely to be sanctioned for changing its deficit target, he said.

On March 2, Prime Minister Mariano Rajoy defied EU allies by raising Spain's 2012 budget-deficit goal after attending a summit in which leaders pledged to observe stricter budget rules. Rajoy said it was Spain's sovereign decision to increase the target to 5.8% of GDP from 4.4%

Spain changed the target because the previous one was based on an economic growth estimate of 2.3%, while the government now expects the economy to shrink 1.7% this year, said the official, speaking to reporters on condition of anonymity in line with government policy.

Spain's partners will understand that circumstances have changed, the official said, adding that they and investors will also take into account efforts Rajoy's new government is making to promote growth by overhauling labor laws and its banking system. They also know that a very deep recession in the country caused by an over-rigid deficit target would hurt growth in surrounding countries, he said.

Spain provided European officials visiting the country this week full data on last year as part of an EU review of why Spain overshot its 2011 deficit target, Deputy Prime Minister Soraya Saenz de Santamaria said at a news conference in Madrid yesterday after a weekly cabinet meeting.

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