Brussels, 07/05/2014 (Agence Europe) - On Wednesday 7 May, the European Commission published its first monitoring report on Spain following the country's exit from its aid plan in January.
Making a broadly positive assessment, the European Commission pointed out a number of budget and financial risks that might negatively impact on the Spanish economy's return to growth in 2014 (1.1% of GDP).
On the budget front, the Commission sways that Spain's public deficit hit 6.6% of GDP in 2013, not including 0.5% of GDP in bank bailouts. The Commission says the 2014 target of a deficit of 5.8% of GDP is within reach as long as the budget is implemented rigorously. Achieving the 2015 target of 4.2% of GDP and the 2016 target of 2.8% will require considerable extra effort along with the positive impact of GDP growth, says the Commission. In order to cut public debt, which is due to exceed 100% of GDP in 2014 and reach 103.8% in 2015, the Commission recommends taking advantage of any good news from unexpected higher than forecast growth.
The European Commission says that the high levels of private, public and foreign debt are risky in terms of sustained growth and financial stability and that the structural adjustment plan should continue “for some time” to enable Spain to reduce macroeconomic imbalances and its high unemployment levels.
The Commission says that Spanish banks, the collapse of whose bubble had forced the country to request financial aid of over €40 billion, are now in a stronger position and became profitable again in 2013. Average bank solvency ratios reached 11.5% at the end of 2013, but the Commission says a “substantial” problem facing SAREB (a “bad bank” set up to deal with toxic mortgages) is how to reduce its large portfolio without taking too great a loss. (MB)