Eurozone finance ministers called on Spain to make new cuts in its 2012 budget to reduce its deficit by another 0.5 per cent of economic output, a stinging rebuke to the new government of Premier Mariano Rajoy, which publicly flouted Brussels-imposed deficit targets.
Despite the new cuts, Madrid will still be allowed to breach a previously agreed deficit limit of 4.4 per cent of GDP this year by nearly a full percentage point; its new target will be 5.3 per cent. But that is significantly below the 5.8 per cent Mr Rajoy announced unilaterally after a summit of European Union leaders this month, and Jean-Claude Juncker said Madrid had agreed to stick to a 2013 target of 3 per cent.
Olli Rehn, the EU’s most senior economic official, said the slight loosening of this year’s deficit target was driven by an unexpectedly high deficit last year – at 8.5 per cent, it came in 2.5 percentage points higher than previously expected – and a deepening recession in Spain that forced his staff to rethink the targets. “The growth prospects for Spain have been weaker, and because of that it is sensible from the point of view of [balancing] the need to restore confidence in Spanish public finances and to return to sustainable growth”, Mr Rehn said.
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