Spanish Prime Minister Mariano Rajoy yesterday revealed the margin for error he wants from eurozone partners as his country’s public finances returned to the debt crisis frontline.

Spain is in recession, and Mr Rajoy said he would now aim to hold his country’s public deficit in 2012 at 5.8 per cent of GDP, significantly above the 4.4 per cent agreed with euro currency partners.

Under new rules for economic governance across the 17-nation eurozone, Spain could eventually face sanctions if the European Commission ordered it to maintain pre-set targets once in receipt of new budget projections.

But he said his new 5.8 per cent figure was a “sensible” target, despite eurozone partners having said they expected Madrid to stick to the plan agreed with the Eurogroup of finance ministers.

On Thursday night after initial talks among EU leaders, eurozone chief Jean-Claude Juncker, Luxembourg’s prime minister, said: “Spain intends to respect the budgetary objectives set for it and which it has accepted.”

But ahead of his government presenting a new Budget in April, Mr Rajoy said “the public deficit figure that will be in our 2012 budget will not be the one that was presented to European leaders (the 4.4 per cent of GDP).”

He said he did not have to present this figure to European counterparts, adding: “This is a decision for Spaniards.”

Estimates for Spain’s 2011 public deficit rocketed from six per cent of GDP to 8.5 per cent of output, putting Mr Rajoy’s government under mounting pressure over two days of talks in Brussels also gathering finance ministers.

Without giving out the figure, Rajoy’s Finance Minister Luis de Guindos said on Thursday that “given the changed circumstances, it is foreseen that a process of negotiations will begin now with euro peers and the Commission”.

“This sends out a very bad signal just at the point Europe commits to more budgetary discipline,” an EU diplomat said at a Brussels summit. “It’s up to the Commission to react,” the source added.

The conservative minister said the missed six per cent target, set by a socialist government that was voted out late last year, was calculated on the basis of a growth forecast of 2.3 per cent this year.

Spain logged growth last year of just 0.7 per cent in GDP, with nearly a quarter of working-age people now unemployed.

Mr Rajoy said that even if the eurozone allows Spain to change its targets short-term, it would not trigger rising borrowing costs on bond markets as happened last year when it was first feared Madrid could be felled in the way Greece, Portugal and Ireland each suffered.

He said his Spanish government was engaged in structural reforms, and underlined: “We take decisions and we stick to them.”

Mr Rajoy, who took power in December, said the Spanish state spent €90 billion more than it received in revenue last year.

The Bank of Spain has forecast the country’s economy will shrink 1.5 per cent in 2012.

Rajoy’s government has announced spending cuts of €8.9 billion, frozen public sector wages and raised taxes on income, savings and property to bring in €6.3 billion.

Spain has also banned its 17 regional governments from running budget deficits from 2020.

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