Olli Rehn said he was ready to consider extending Spain's deadline to hit tough deficit targets by a year, the clearest sign that the EU is concerned that the austerity measures it is enforcing in eurozone countries may be deepening the region's recession.
Olli Rehn said he would only allow the leniency – which would give Madrid until 2014 to reduce its budget deficit to 3 per cent of economic output – if the Spanish government proved it could rein in profligate regional authorities and presented a credible budget plan for the next two years. Despite the conditions, the move marks the first time the EU has countenanced such a delay since adopting tough new budget rules in the wake of the eurozone debt crisis. Spanish officials insisted Madrid had no intention of accepting the one-year delay.
Mr Rehn made the announcement as part of a highly anticipated series of country-specific economic reform recommendations which now carry significant legal weight under the new budget rules. His singling out of Spain highlighted mounting concerns in Brussels that Madrid may not be able to turn its economy around, shore up its teetering banking sector, and bring its spiralling sovereign debt under control without additional EU assistance. Spain's budget deficit last year was 8.9 per cent.
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