Nicosia, 14/09/2012 (Agence Europe) - At the meeting of eurozone finance ministers in Nicosia on Friday 14 September 2012, Spanish economy minister Luis de Guindos said that the Spanish government will later this month identify new structural reforms and promised important announcements over the next few days. He said the new measures would stimulate growth and competitiveness in the Spanish economy based on the country-specific recommendations endorsed by the European Summit at the end of June. The reforms will help Spain meet its budget deficit reduction target of 6.3% of GDP in 2012, 4.5% in 2013 and less than 3% in en 2014. Suffering from a serious cold, de Guindos had to leave the eurozone finance ministers' meeting for a while at one point.
The Spanish economy minister gave no details about the measures to be expected. The country-specific recommendations for Spain cover: 1) public finances (reducing the public deficit to 3% in 2014 and introducing a financial stability law, reforming the pension system and budget and tax changes); 2) financial sector (bank reforms, changes to the housing market and making it easier for small businesses to access funding); 3) structural reforms (greater flexibility in energy companies and other industries, boosting growth in the service sector, backing innovation and reforming the civil service and changing civil servants' pay and conditions); and 4) the labour market (getting more people into work, reforming education and labour market intervention policy) (see EUROPE 10681).
The chair of Eurogroup, Jean-Claude Juncker, said that the Spanish minister had told his colleagues that he was prepared to take any additional measure required if the 2012 objective were not met for any reason. Juncker added that the draft Spanish budget provided clarity about the budget consolidation strategy. Euro Commissioner Olli Rehn said that future Spanish policy commitments would be very clear and include a timeline. Rehn said that the financial reforms announced in August were a step in the right direction. They include hiving off bad debt into a “bad bank” and greater restructuring powers for the Spanish central bank. Said reforms are required under the up to €100 billion aid promised by eurozone at the end of July. The Spanish bank audit outcome, expected at the end of the month, will give a clear picture of capital needs, said Rehn, pointing out that a healthy financial sector is crucial for restoring confidence in the Spanish economy. IMF director general Christine Lagarde praised the wide range of measures promised.
New budget information bears witness to the work already done by Spain and the remaining challenges on the budget front. The country's seventeen regions look likely to achieve their 1.5% of GDP deficit reduction target - it stood at 0.77% in the first quarter. Not including payments to the Spanish regions, the central public deficit was 0.9% in the first quarter, but Spanish debt (75.9% of GDP) has risen to a record high.
No second bailout is on the table, officially at least. Luis de Guindos is indefatigable in making it clear that a full Spanish bailout (to cut its debt rollover costs) was not discussed at the Eurogroup meeting and Lagarde said that no in-depth negotiations were going on, denying rumours reported in Dutch financial newspaper Het Financieele Dagblad that the IMF and ECB are holding informal talks about a €300 billion aid package for Spain. Lagarde's comments were echoed by French economy minister Pierre Moscovici, who pointed out that the Spanish government was solely responsible for requests for aid. He said, however, that if the Spanish government were to apply for aid, then the instruments were in place to deal with the Spanish situation, referring to the establishment next month of the European Stability Mechanism (ESM) bailout fund for the eurozone, which will have lending capacity of €500 billion (see article below).
Before deciding on whether aid will be needed, Spain wants to take advantage of the period of calm following the ECB's recent announcement of a bond purchase programme for eurozone nations and Germany's imminent ratification of the ESM. It is anxious to ensure that joint activation of the ESM and the ECB's bond buy-up programme will not come with any further strings attached other than those laid down by the recent eurozone summit (see EUROPE 10645). Laid down formally in a programme whose application will be monitored by the troika (European Commission, IMF and ECB), the financial conditions cover respect of previous commitments to respect the Stability and Growth Pact (budget and macroeconomic targets) and introduction within a certain timeframe of the country-specific recommendations issued under the European Semester system. (MB/transl.fl)