1st Jul 2022

Recession-marred Spain pushing for an ease in deficit targets

  • Unemployment is higher than 20 percent in Spain (Photo: xOchoa)

Faced with unpredicted recession, Spanish PM Mariano Rajoy said he will "talk to the EU commission" about easing the country's deficit target for this year.

“We’ll talk to the commission, but in any case Spain will respect its public deficit targets,” Rajoy told reporters in Rome on Thursday (23 February) when asked about an ease of the deficit target.

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He promised to draw up a "reasonable" budget for 2012 based on the "prudent" EU forecasts unveiled Thursday, which show that Spain's economy will contract by one percent of its gross domestic product instead of growing by 0.7 percent as predicted three months ago.

“This situation obliges us to be realistic,” Rajoy said. “The spending limits will be prudent, based on a prudent forecast of tax receipts. We aren’t going to say we’ll collect taxes that we don’t believe we’ll collect.”

Spain is supposed to bring down its deficit to 4.4 of GDP this year, but given the recession, the government is now trying to negotiate a five-percent target, the Financial Times reports.

Madrid already missed its deficit target in 2011, when Rajoy disclosed that it exceeded 8 percent of GDP compared to the 6 percent declared by his predecessor, Jose Luis Rodriguez Zapatero.

Recent past shows that a change of government is not seen as enough of a reason to accept an adjustment in a country's agreed targets. When Belgium finally formed a government last year it still had to pass spending cuts within a tight deadline or face severe fines.

“We will work with the Spanish authorities and decisions will be taken once we have a full picture,” said Rehn referring to when the budget is drawn up and submitted to the EU commission in March. Rehn also said that his services will examine if last year's overshoot of the deficit target was a one-off and if the blame lies with the central or regional governments.

Rajoy has already raised taxes and cut spending to reduce the deficit by about €15 billion, including education cuts which saw protests in several Spanish cities. According to Moody's, if the 4.4 percent deficit target stays the same, further cuts amounting to some €25bn would have to be enforced.

Thousands of students gathered in the eastern Spanish town of Valencia this week to protest against education cuts.
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The EU economy is expected to grind to a halt in the 27 member states and to contract by an average of 0.3% in the eurozone, with recession hitting Greece, Portugal, Italy and Spain worst, fresh EU forecasts show.

Spain to test beefed-up EU budget rules

Spain is testing new EU rules on budget discipline as it seeks flexibility from Brussels on deficit targets, amid a wider debate on growth versus austerity.

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The European Parliament approved last week a non-binding resolution on illegal logging, calling to extend the EU public prosecutor's mandate to also cover environmental crime. The lead MEP on the file has called for urgent implementation.

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