Brussels, 26/03/2012 (Agence Europe) - Spanish budget problems threaten to undermine the burst of optimism seen on the sovereign debt money markets this year, but the European Commission is refusing to relax the budget surveillance period known as the European semester, explained a spokesperson for Euro Commissioner Olli Rehn on Monday 26 March.
The Commission first wants to learn the details of the Spanish budget for 2012 and how the conservative government's austerity policies are expected to fit in. The prime minister, Mariano Rajoy, says that the government wants to reduce its deficit from 8.5% to 5.3% of GDP this year and will be publishing a budget shortly, following the elections in Andalucia at the weekend that kept the Left in power by a slim majority. Early next month, Madrid will send its revised stability programme and structural reform plans to the European Commission. At the end of April, Eurostat, the EU's statistical office, will examine the figures for all countries under infringement proceedings for excess deficit, and will submit its report to the Commission. Once the Commission has all the information it needs, it will unveil its spring economic forecasts in May. Meanwhile, European experts will travel to Madrid on a fact-finding mission to examine the country's macroeconomic system, as part of a series of general fact-finding missions in 11 other countries (see EUROPE 10553).
At the weekend, Olli Rehn said that the increasing tension on the money markets and the rise in the interest rates demanded to roll over Spanish debt were due to the country's postponement of its budget targets. He said the markets reacted earlier to the feeling that Spain was trying to ease its budget targets for this year, increasing yield rates by over a percentage point. The commissioner said the situation was fragile. In an unusual move, Italy's prime minister, Mario Monti, said that Spain was letting its budget slip somewhat, commenting that the country had undertaken a huge reform programme for its labour market but had not paid enough attention to its public finances. Monti told the Financial Times that the situation generated huge concern in Italy because yields are rising and it would not take much for the new trend to spill over to Italy.
At the spring summit, to everyone's surprise, Rajoy announced that he would be changing Spain's deficit reduction target for 2012, which had been set by the previous Socialist government at a reduction from 8.5% to 4.4% of GDP. Rajoy said this was too optimistic, given the current state of the economy, and the target will now be 5.8% of GDP for 2012 (see EUROPE 10566). The Eurogroup authorised some flexibility in Spain's target, which is now 5.3%, as long as Madrid continues to respect its aim of bringing the deficit to below 3% of GDP in 2013 (see EUROPE 10573). (MB/transl.fl)