Spanish prime minister, Mariano Rajoy, has told Brussels that Spain “will miss” their 2012 deficit target, putting the country at risk of sanctions from the European Union.
The announcement was made shortly after the prime minister had signed a new fiscal agreement with fellow EU leaders. The pact is supposed to ensure all member states’ commitment to disciplined finances and the prevention of debt build-ups that many blame for the crisis.
Spain is in an increasingly difficult position with unemployment levels still rising and a fall in economic output, making the EU imposed target of 4.4% “almost impossible”.
Sr. Rajoy, who’s PP party swept to election victory in December, made no apologies for his comments, saying that the 2012 deficit target was not realistic, given the country’s economic problems.
However, Rajoy said Spain still plans to cut its deficit to 3 per cent in 2013, bringing the country back in line with the new fiscal rules. He said that his government was committed to austerity.
Rajoy expects this years deficit to be 5.8% of GDP, a fall from 8.5% in 2011, but still above the 4.4 per cent it had previously agreed with the EU.
Meanwhile, in Madrid, Economy Minister Luis de Guindos announced the 1.7% GDP contraction forecast and said the economy is expected to shrink further in the first two quarters of 2012 and possibly the third, before beginning to pick up. The minister blamed slowing domestic consumption, high oil prices and a slow in the world economy.
He also added that unemployment will rise over the short term as recent labour reforms passed by the new government will take time to have any noticeable effect.