Spain's government reached a broad agreement with its 17 regions on 2012 budget cuts, despite protests from a handful of some of the country's most powerful regional finance chiefs.
The agreement represents a crucial step forward for Prime Minister Mariano Rajoy's plans to slash one of Europe's largest budget gaps. Two months after coming to power at the end of December, the conservative leader last week announced his government will prepare a 2012 budget that aims to reduce its deficit to 5.8 per cent of gross domestic product, far in excess of the 4.4 per cent target his predecessor, José Luis Rodríguez Zapatero, had committed to with the European Union. Ignoring the angry reproaches of some EU officials, Mr Rajoy said a rapidly deteriorating economic situation and a large 2011 budget overrun made the 2012 deviation necessary. "In Spain, all levels of government are committed to reducing the budget deficit", said Budget Minister Cristóbal Montoro after a meeting with regional finance chiefs.
Investors sold off Spanish stocks and bonds, partly because of the country's budget slippage, analysts said. Spain's 10-year borrowing costs climbed above those of Italy for the first time since August, with the yield reaching 5.15 per cent.
Mr Rajoy's plan to scale back the magnitude of budget cuts this year was welcomed by many independent economists and politicians in Spain, where the economy is tipping back into recession and unemployment has shot over 23 per cent. But powerful regional leaders balked at the new distribution of budget targets for different levels of government. While the central government in Madrid will be allowed to run a deficit of 4 per cent of GDP in 2012, up from 3.2 per cent earlier, the regional governments' new target of 1.5 per cent, up from 1.3 per cent previously, a much slimmer cushion.
Under Spanish legislation, all 17 regions will be bound majority agreement to uphold the 1.5 per cent of GDP target.
Full article
© Wall Street Journal
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article