New Spanish deficit target ‘reasonable and achievable’

Spain’s new 2012 deficit target of 5.3 per cent of output agreed with the European Union is “reasonable and achievable”, Prime Minister Mariano Rajoy said yesterday.

Rajoy said Madrid would “scrupulously” respect its 2013 deficit target of three per cent agreed with Brussels. Spain was supposed to bring its deficit down to 4.4 per cent of output this year, but last month Rajoy month said that Madrid would aim for a deficit of 5.8 per cent instead.

The higher figure arose in part from a sharp increase in the estimated deficit for last year, setting a higher base level, but the European Commission responded by insisting at the time that Spain must meet its targets.

On Monday, the two sides agreed that Spain must cut the deficit to 5.3 per cent of gross domestic product in 2012 and to the EU ceiling of three per cent in 2013 – still a major challenge for the next two years.

“What is important is that we have accepted to change the previous goal of 4.4 per cent set in 2009 and ratified in 2011 for a more reasonable and achievable target of 5.3 per cent,” he said during a debate in parliament.

“Since we must always maintain the maximum level of coordination and consensus with our European partners, we decided to accept this approach.

“The solidity of our arguments was recognised even if we are asked to make a stronger effort this year,” he added.

Rajoy’s government, in power since December, had argued that the 2012 deficit target set by its Socialist predecessors needed to be changed to reflect new economic realities, with Spain now forecast to return to recession this year with a contraction of 1.7 per cent.

The new deficit targets oblige Spain to make an extra €5 billion of savings this year.

Rajoy’s conservative government said shortly after it came to power in December that the 2011 public deficit would be about eight per cent of GDP, far above the six per cent agreed with Brussels by Spain’s previous socialist government.

It has announced spending cuts of €8.9 billion and frozen public sector wages and increased taxes on income, savings and property to bring in €6.3 billion, as part of efforts to rein in the deficit.