Spain to ask Brussels for extra year to meet deficit target

Madrid / Reuters

Spain plans to ask the European Commission for an extra year to meet its public deficit targets, El Pais reported on Sunday, after missing the mark with its 2015 deficit and raising the prospect of further spending cuts to narrow the budget gap.
The country last month reported a 2015 deficit of 5 percent of economic output, one of the largest in Europe and above the EU-agreed target of 4.2 percent. To reduce that to the 2016 target of 2.8 percent of gross domestic product (GDP), the Spanish government will need to find about 23 billion euros ($25 billion) through tax increases or spending cuts.
The economy ministry declined to comment on the newpaper report, which cited government sources as saying that acting Economy Minister Luis de Guindos would include revised economic projections in the stability programme to be presented to Parliament on April 19.
Unpopular austerity measures imposed during the economic crisis prompted many voters to turn away from the traditional political parties in the Dec. 20 election, leaving Spain without a majority large enough to form a government.
The caretaker government, headed by acting Prime Minister Mariano Rajoy, will ask Brussels to ease this year’s deficit target to 3.7 percent of GDP when it presents its stability programme this month, El Pais said.
Madrid, which must send its latest projections to Brussels before May, currently expects economic growth of 3 percent this year after GDP expanded 3.2 percent year on year in 2015.
Spain was sucked into a five-year economic slump after its property bubble burst in 2008, sending public debt soaring to almost 100 percent of GDP last year, from less than 40 percent before the crisis.
Deep budgetary adjustments by Rajoy have almost halved the budget shortfall since he took power in 2011 and a return to relatively strong economic growth since the second half of 2013 has also helped to boost the public coffers.
However, additional spending and tax concessions in the lead up to the December election meant the government and regional authorities struggled to meet budget guidelines.
In exchange for more time, the government will commit to additional savings at a regional level of between 0.5 percent to 0.7 percent of GDP, equating to between 5 billion euros and 7 billion euros, El Pais said.
With new elections in June increasingly likely, any incoming government will have little time to make the necessary fiscal adjustments before the end of the year.