Spain will miss 2012 deficit target

Mariano Rajoy speaking in Brussels
Spain will miss target, says Rajoy

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.

Spain asks Brussels for easier target

According to reports, Spanish Prime Minister, Mariano Rajoy, has told European officials that the debt reduction target of 4.4% will be impossible to meet and has asked to raise the target to 5%.

Officials said Spain is likely log a deficit of 8% for 2011, two points above its target of 6%. In 2010 the figure soared to 9.3 percent.

Government sources say Spain’s savings and reforms will strengthen the economy, which is still suffering from the bursting of the real estate bubble in 2008. Some say the country will enter a new recession in this quarter after only recently recovering from the recession of 2010.

Today experts are expecting the European Commission (EC) to announce revisions to the eurozone growth forecasts following the implementation of spending cuts, tax increases and job losses across the member states.

Finance minister Luis de Guindos said that Spain’s request to lift its debt targets would not appear unusual because there is likely to be a “general reconsideration of targets across the whole of the EU”.

An official said that Spain and other countries may want to use the economic data to get their targets reduced but Brussels was “unlikely” to give in to requests for change so soon.

The ongoing crisis was evident over the weekend when Spain saw 1.5 million protesters across the country objecting to drastic labor reforms recently announced.