• Spanish regions control a third of the country's spending (Photo: Valentina Pop)

Spanish regions agree to deficit plan

03.10.12 @ 09:28

  1. By Valentina Pop
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BRUSSELS - Spain's regions on Tuesday (2 October) agreed to spending cuts aimed at bringing down the country's deficit in line with EU rules by 2014, Prime Minister Mariano Rajoy has said.

He also rejected rumours that Madrid would ask for a bailout this weekend.

"If a news agency reports that we'll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right," Rajoy told press after meeting the 17 regional leaders.

Reuters had quoted unnamed EU officials saying Spain had shifted its position and is now "ready" to ask for a bailout this weekend, but that Germany still opposes the move.

For his part, Rajoy had previously said his government is studying the possibility of asking for financial assistance, which would allow the European Central Bank to buy up Spanish bonds.

But borrowing costs have gone down in recent weeks, alleviating pressure on Madrid to make this move.

Meanwhile, with all 17 regional leaders pledging to stick to EU's target of a three-percent deficit by 2014, Rajoy said he is happy to "give a good message" to markets.

The meeting came after several regional leaders had publicly questioned the extra austerity measures agreed by the central government and amid mass anti-austerity protests, parts of which turned violent.

Five regions have asked for aid from an €18 billion national bailout fund.

A growing separatist movement in Catalonia - the country's biggest regional economy, where elections are due next month - has also added tension to the Spanish political scene.

The country's regions are responsible for a third of national spending and have been blamed for messy balance sheets which led to a bloated budget deficit of nine percent of GDP last year.

For this year, the government has recently predicted the deficit will be 7.4 percent - an increase of over one percent compared to what it agreed with the European Commission in spring.

The commission has signalled it will be lenient over the latest upwards revision of the target, as most of the extra gap is due to the €100 billion bailout Spain signed up to in June for its banking sector.

An audit published last Friday showed that banks actually need only some €60 billion.