Brussels, 13/03/2012 (Agence Europe) - The Eurogroup is calling on Spain to make extra public spending cuts in order to reduce its deficit from 8.5% of GDP to 5.3% in 2012, but will not budge on the need to bring the deficit back below the 3% cut-off point in 2013. “The Eurogroup assesses that timely correction of the excessive deficit should be ensured by additional frontloaded effort to the order of 0.5% of GDP beyond what has already been announced by the Spanish authorities so far”, it explained in a statement issued on Monday evening, 12 March. Spain is entirely in favour of budget adjustment, is totally involved in structural reforms and clearly, this recommendation from the Eurogroup will be accepted by the Spanish government, said Spanish Economy Minister Luis de Guindos on Tuesday 13 March.
At the spring European summit, the Spanish conservative government headed by Mariano Rajoy announced that it had decided to replace the deficit reduction target of 4.4% for this year with a target of 5.8%, without changing the 3% target for 2013 (see EUROPE 10566). The Spanish media report that in order to meet the new 2012 target, public spending cuts of some €20 billion will be required, in addition to the €15 billion cuts announced earlier this year.
The head of Eurogroup, Jean-Claude Juncker, said the decision had been taken and the announced target of 5.8% no longer applies, noting that the most important thing was the 2013 target, rather than exactly how much of the 2013 target is achieved in 2012. Referring to comments by the former president of the European Commission, Romano Prodi, EU Euro Commissioner Olli Rehn said the stability and growth pact was not stupid. The new timeline set for Spain takes account of the need to restore confidence in Spanish public finances and introduce the conditions for an economic upturn. The commissioner said decisive action was needed on public finances by all the member states, particularly those under pressure from the markets. He added that Spain must also introduce structural reforms and ensure strict application of the new finance bill, including at local authority level.
Spain's public deficit news has generated new fears on the money markets and the interest rate demanded for long-term Spanish debt is now higher than the rate for Italian long-term debt. In a few weeks' time, ahead of the regional elections in Andalucia (which the right wing is expected to win by a landslide), the Spanish government will unveil a draft budget for 2012, which will require drastic austerity measures to be introduced by the country's regional governments. (MB/transl.fl)