Brussels, 22/02/2012 (Agence Europe) - The Conservative government of Mariano Rajoy hopes to win some concessions from the European Commission on its public deficit reduction target for 2012, the daily El Pais reports on Wednesday 22 February. Spain will be expected to reduce its deficit to 4.4% of GDP in 2012, but the 2011 deficit is now forecast to be above 8%, much higher than the 6% target set by the previous Spanish government.
Spain would have to make savings of some €40 billion in a single year, €15 billion having already been planned. “The Spanish government believes it would be suicidal to try to take the deficit of 8% of GDP down to 4.4% this year. A reduction on this scale would require enormous adjustment which would bring greater recession and more unemployment”, the Spanish daily says. Madrid is expected to argue that the deficit reduction target of 4.4% of GDP, set by the previous Socialist government, was based on an unrealistic 2.3% growth forecast. The Spanish economy is expected to fall back into recession this year, with GDP falling by 1.7%, according to the IMF. The Rajoy government has brought forward three major reforms since it came to power: the golden rule limiting public indebtedness has been incorporated into the Spanish constitution, a new plan to restructure the banking sector has been announced (see EUROPE 10546) and a reform to bring more flexibility to the labour market.
The problem is that Olli Rehn, the commissioner with responsibility for the euro, has promised to be firm in applying the rules of the revised stability and growth pact for both the countries of the eurozone and the others, and this determination has been demonstrated in the threat by the Commission to suspend some European cohesion funding that has been allocated to Hungary (see related article). (MB/transl.rt)