Thursday

21st Jun 2018

Ballooning deficit to up pressure for Spanish bailout

  • Will the crisis last five more years, as the German Chancellor has predicted? (Photo: Valentina Pop)

The EU commission on Wednesday (7 November) is likely to forecast a larger-than-expected deficit for Spain, adding pressure on the country to ask for a bailout.

Spain's public deficit for this year - already adjusted twice in recent months - is now expected to reach eight percent of the country's gross domestic product, according to draft figures seen by AFP.

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This will be almost two percent more than a previous estimate when Spain obtained a year extra to bring its deficit below the three-percent threshold under EU rules.

In addition, recession is to last until 2014, making it difficult for the Spanish government to push for more austerity measures to bring the deficit down.

But the European Commission has in the past few weeks indicated it will not suggest Madrid be sanctioned for missing its deficit target this year so long as it sticks to the 2014 deadline of bringing the public finance gap below three percent.

Part of the extra expenditure is the bank bailout which is to be reimbursed from the eurozone bailout fund in the coming months. Up to €100 billion had been earmarked from the eurozone fund, but an audit has since said only about €60 billion will be needed.

Spanish Prime Minister Mariano Rajoy tried to be positive about the future. "In 2014, there'll be growth in Spain. The worst year will have been 2012 and next year will be better," he said in a radio interview on Tuesday.

"All the measures we're taking are aimed at economic recovery ... it's very difficult to create jobs when you owe so much."

But with one in four workers out of a job and regions asking for bailouts from the government, the pressure on the government to ask for a full-blown eurozone bailout is set to increase.

Greece

Meanwhile, the Greek parliament is due to vote on the €13.5 billion worth of spending cuts demanded by the troika of international lenders in order to disburse the next tranche of bailout money. Without this tranche, Greece faces the prospect of bankruptcy by mid-November.

But Greeks - with the country in its fifth year of recession - have little appetite for more cuts. A general strike, started Tuesday, in protest at the continuing austerity measure has virtually closed the country down.

Meanwhile, support within the ruling coalition for the cuts is also shaky. But Prime Minister Antonis Samaras has indicated he is confident that MPs from the opposition will back the bill, securing enough votes to pass it.

The rest of Europe is watching the debate closely. "Our Greek friends don't have different options or another choice. They have to do it," Eurogroup chief Jean-Claude Juncker said during a lecture in Singapore also on Tuesday.

Analysis

Spain's bailout dilemma: not if, but when and how

Markets rallied on Tuesday when two German lawmakers suggested Berlin is warming to the idea of a Spanish bailout. But the wait-and-see game in Madrid is likely to take a few weeks longer.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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