Spain may get nod to ease pace of fiscal cuts

The eurozone believes Spain‘s budget cuts should take account of its recession, its economy minister said, as regional policymakers debated whether to let the country slacken the pace of its austerity drive.

The International Monetary Fund said Spain will miss the 2012 and 2013 deficit targets that it agreed with the European Union as the economy will contract far more next year than the country has forecast.

A senior eurozone official told Reuters that, given the growth outlook, there were concerns about Madrid‘s ability to meet its fiscal goals.

Those targets are seen as crucial to winning back investor confidence and avoiding being shut out of financial markets that are increasingly betting the country will need to tap some sort of emergency funding programme.

Spain’s new central bank head, who also said the Government had used overly rosy GDP targets as the basis for its proposed 2013 budget, has ta­ken the opposite tack by recommending deeper austerity.

Speaking at an EU finance ministers’ meeting in Luxembourg, Luis de Guindos brushed off those calls, saying the economic forecasts were not excessively optimistic, and that his counterparts in the euro zone had “absolutely not” pressed Spain for more cuts.

At a time of escalating anti-austerity protests in Madrid, the Washington-based IMF said that the country’s public deficit would reach seven per cent of GDP in 2012 and 5.7 per cent in 2013. That compares with European Union-agreed targets of 6.3 per cent this year and 4.5 per cent next year.

A worsening outlook for Spain will add fuel to a debate about whether a German-led drive to cut deficits at a time of recession is the right approach to tackling the debt crisis, or if governments should give them­­selves more time to reduce their swollen debts and deficits.

The eurozone has already eased fiscal targets for Spain once this year, and the IMF has advised Britain, which is part of the EU but outside the eurozone, to scale back its fiscal tightening plans if growth does not pick up by early next year.

“I greatly respect the IMF forecasts ... but they are not written in stone,” de Guindos said.