Spain seeks support over deficit target

Mariano Rajoy, Spain’s prime minister, is seeking support from his EU counterparts after requesting a reduction in his country’s deficit target.

Rajoy, elected last November, said on Wednesday that Spain would do “everything we can” to cut the budget deficit because the public sector could not continue spending 90 billion euros more than it earned each year.

Spain announced this week that its 2011 budget deficit was 8.5 percent of GDP, much higher than expected. This will make the 2012 target harder to achieve.

The PM said recently that Spain’s target of 4.4% is almost impossible to meet and has discussed the options for increasing the target.  This has apparently upset a few people within the Commission, where officials view Rajoy’s efforts as improper politicisation of what should be a technocratic judgement by staff economists.

Rajoy accepts that deficits need to be cut but not at the expense of job creation, which is a top priority for Spain where unemployment is currently at 23%, one of the highest rates in Europe.

“We will lower (the deficit) as much as we can, but these policies should be made compatible with those used to create jobs,” Rajoy said speaking to Radio Nacional de España. “We will do it with no rush but no pause.”

But the Commission says it is not willing to show flexibility until Spain provides an explanation of why the 2011 deficit was so much higher than expected and puts forward new austerity measures to help meet this years target.

“There is an in-depth debate: is it logical to maintain targets as if nothing had happened?” said Joaquín Almunia, Spain’s European commissioner. “That is a political discussion that may start tomorrow [Friday] in the European Council and I think it is better to have this discussion with as much data as possible on the table.”

Some smaller euro-zone countries have expressed anger over Rajoy’s efforts saying they viewed it as an attempt to get special treatment.

“It would question the entire economic governance tool kit,” said a senior diplomat from a smaller country that has previously had it’s own fight with the Commission over deficit targets. “We hope there is equal treatment.”

Chairman of euro zone finance ministers, Jean-Claude Juncker, told Spanish radio he was sure a solution could be found for Spain, but with a second recession on the horizon, escalating unemployment and unpopular tax increases there has to be a question of whether a reduced target could be met at all.