Saturday

23rd Jul 2016

Spain gets controversial let-off on budget deficit

  • Economic growth in Spain is to be lower than previously thought (Photo: xOchoa)

Eurozone finance ministers on Monday (12 March) agreed to a looser deficit target for Spain this year, but insisted that the fourth largest euro economy gets back on track by 2013, a first test for eurozone's tougher budget rules.

"Entering the meeting I did not expect a decision on the 2012 budget for Spain, but now we have a common decision that the front-loaded effort this year should be of 0.5 percent of GDP," Eurogroup chief Jean-Claude Juncker said during a press conference at the end of the eurozone finance ministers' meeting.

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The figure is an important concession for the Spanish government, who earlier this month announced it would overshoot an agreed deficit target (4.4%) by 1.4 percent of GDP this year.

Unpredicted recession and unemployment above 20 percent, as well as a higher deficit unveiled after the previous government left office in 2011 were all used as justification by Spanish finance minister Luis de Guindos - who first had a one-on-one meeting with the German finance chief.

"We took some time with the Spanish minister to talk face to face about the budget situation. Spain made big progress, markets have acknowledged that. It is still on a tough road, but it is the right one," German minister Wolfgang Schauble said Monday as he went into the meeting with De Guindos.

Some seven hours later, all 17 eurozone ministers agreed that Spain could be given a laxer deficit target this year, provided it returns to the three-percent deficit rule in 2013.

"We are highly concerned by the high unemployment and increasing poverty, but we agreed Spain will stick to the 3 percent target in 2013, which is more important than the avenues chosen in 2012," Juncker explained.

Economics commissioner Olli Rehn also sought to pre-empt accusations that the EU's tougher budget rules - in place since December - are being softened for a large country while Hungary, in similar deficit trouble, is set to be sanctioned.

"The stability and growth pact is not stupid, it focuses on structural sustainability of public finances," Rehn said during the press conference alluding to Hungarian Prime Minister Viktor Orban's comments about the possible aid freeze being 'stupid'.

Rehn explained that Hungary was meant to bring its budget back on track by 2011, while Spain's deadline is 2013.

"It is crucial that Spain has committed itself to meet the three-percent target next year. There was a large slippage last year, which is very regrettable and which has had a weight on this year's budget consolidation efforts," Rehn added.

Double standards

Austrian finance minister Maria Fekter on Tuesday morning criticised the "double standards" applied to Hungary and Spain. "We think Hungary should be given more time", she said on her way into a meeting of all EU finance ministers.

Belgium, whose new government was given just a few weeks in December to pass budget cuts and bring down the deficit, is also unhappy with the Spain decision.

"One thing is clear: one can hardly plea for an exemption for one country and not have all the other countries claiming changes to the rules in their favour," Belgian finance minister Steven Vanackere said Monday.

The Belgian government on Sunday passed new austerity measures to the tune of €1.8 billion, on top of the €11.3 billion cuts passed in December - moves praised by Brussels.

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