Spain Budget Goal Relaxation Signaled Possible

29 Jan 2013

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European Union


European Union budget enforcer Olli Rehn signaled he might seek to ease Spain’s targets for cutting its budget deficit next month in a retreat from the austerity- first policy demands driving the economy into recession.

EU officials will make a decision on the best pace for Spain’s budget consolidation process when they deliver a scheduled assessment of the program in February, Rehn said at a press conference in Madrid Monday.

“If there has been a serious deterioration in the economy, we can propose an extension of a country’s adjustment path,” said Rehn, the EU’s economic and monetary affairs commissioner, as he sat alongside Spanish Economy Minister Luis de Guindos. “That’s what we did last year in the case of Spain.”

Spain’s economic contraction accelerated in the final three months of last year as the austerity program dictated by European officials bit into domestic demand and destroyed 850,000 jobs during Prime Minister Mariano Rajoy’s first year in office. That program will need to be intensified if Spain is to meet its target for this year, the Bank of Spain said in a report last week.

The government probably missed its goal of lowering the budget gap to 6.3 percent of gross domestic product in 2012, Budget Minister Cristobal Montoro signaled last month. This year’s target is 4.5 percent. GDP probably fell 0.6 percent in the fourth quarter, twice the pace of contraction in the previous three months, the Bank of Spain said.

The National Statistics Institute will publish the first official estimate of fourth-quarter output tomorrow, reports Bloomberg.

Austerity Mix
“It is important that there is an appropriate and growth- friendly mix of expenditure cuts and tax increases,” Rehn said. He said he couldn’t confirm the 2012 budget gap exceeded 7 percent, and said the EU will update its assessment on Feb. 22.

Rajoy is seeking to avoid a full bailout as a slump in the euro area’s fourth-biggest economy enters its fifth year, undermining efforts to meet EU targets. The European Central Bank’s pledge to provide support to nations struggling has brought down borrowing costs, easing the pressure on Rajoy.

That shift must not lead to the government slowing the pace of economic reform, Rehn said yesterday.
“The labor market reform is indeed crucial,” he said. “It is also important that Spain will continue and intensify the work to make it easier for businesses to start up and operate and compete throughout the country.”

Tags: World, Business, Spain Budget

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