Spain misses 2015 deficit goal adding to pressure for cuts

Bloomberg

Spain missed its budget-deficit goal for 2015 as Prime Minister Mariano Rajoy tried to rally support ahead of December’s election, marking the eighth consecutive year the nation has overshot its fiscal target.
The shortfall last year was 5.2 percent of gross domestic product, the second-biggest deficit in Europe, Budget Minister Cristobal Montoro said Thursday at a press conference in Madrid. Spain missed its target of 4.2 percent due to greater-than-expected spending by regions and the social security system which couldn’t be fully offset by additional efforts from the central government and the city halls, he said.
“Someone hasn’t done what they were supposed to do,” Montoro said.
Spain has been under the commission’s excessive-deficit procedure since 2009, after the nation’s public finances came under intense pressure at the start of the euro crisis. Although Rajoy has almost halved the budget gap since arriving in office in December 2011, he has persistently missed his target even as the recovery gained momentum.
“This is flagrant proof of the failure of the current government to comply with its key mission of keeping the accounts under control,” said Javier Diaz Gimenez, a Madrid-based economics professor at IESE Business School. “It puts Spain in very difficult situation in terms of its credibility with its European partners and the
markets.”
The nation’s commitment to meeting its fiscal goals has been questioned by the commission, which forecast a shortfall of 4.8 percent in February, even as officials in Madrid vowed to comply. European Economic Affairs Commissioner Pierre Moscovici warned that Spain would have to address the gap and some additional measures may be needed. The Rajoy administration has repeatedly rejected further austerity.
The miss contrasts with caretaker prime minister’s pledge to honor Spain’s fiscal commitments in the run-up to December’s general election, even as his government introduced a series of tax cuts coinciding with the campaign. After the ballot, which stripped Rajoy of his overall majority, he said the deficit would come in at approximately 4.5 percent, while Acting Economy Minister Luis de Guindos said more focus should be put on growth.
For 2016, the EU’s executive sees Spain breaching its target again, with a deficit of 3.6 percent instead of the agreed 2.8 percent.
The latest health check on the Spanish economy comes as lawmakers in Madrid struggle to form a working government following a fragmented election result. While Rajoy has persistently called for a grand-coalition, his Socialist rival Pedro Sanchez is looking to form an alternative government to oust him. If no government can be formed by May 2, new elections would have to be called with a new ballot taking place June 26.