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Rajoy Faces Tougher Budget Task This Year After Spain’s 2011 Deficit Miss

Spain expects the European Union to review its budget-deficit target before the presentation of its 2012 spending plan this week, as last year’s slippage hampers efforts to tackle the euro area’s fourth-biggest shortfall.

“It is expected that once Brussels has knowledge of the data, it will give the corresponding indication in the coming days, and that the government will include it in the spending limit on Friday,” Deputy Minister for Public Administration Antonio Barreda said during an interview with Radio Cinco in Madrid today.

Spain will present its spending plan for 2012 on March 2 and is counting on the EU to review its deficit goal of 4.4 percent of gross domestic product in 2012 as it struggles to rein in overspending amid its second recession since 2009.

Budget Minister Cristobal Montoro yesterday said the nation’s overall budget deficit came in at 8.5 percent of GDP in 2011, overshooting the government’s previous estimate of about 8 percent and an EU target of 6 percent. Unemployment rose to an EU record of 23 percent.

“We are going to promote budget stability as soon as possible with a credible path,” Montoro said. “We are in a recession and that must be recognized, which means implementing a budget policy that will lift us out of this recession.”

Unchanged goals would oblige Prime Minister Mariano Rajoy’s government, in power since December, to add 25 billion euros ($34 billion) of cuts to a 15 billion-euro package announced on Dec. 30, according to Moody’s Investors Service.

Assessing Sustainability

The EU is waiting for information from Spain on last year’s slippage and this year’s budget, EU Economic and Monetary Affairs Commissioner Olli Rehn told lawmakers today at the European Parliament in Brussels. “We can then assess whether Spain is taking effective action to ensure structural sustainability of public finances,” Rehn said.

EU members must respect the 27-nation bloc’s rules on budget deficits, Olivier Bailly, a spokesman for the EU, told reporters separately today in Brussels. “We are not talking about giving more flexibility to any member states when it comes to fulfilling commitments.”

Spanish Economy Minister Luis de Guindos said he’ll explain Spain’s budget policy and 2011 deficit during the next meeting of euro-region finance ministers in Brussels on March 1.

“Starting from there, with the commission’s own revision of growth forecasts, all European countries will start a review of their stability programs,” de Guindos told reporters in Madrid today. Spain will step up its budget adjustment measures this year as it remains committed to reducing its deficit, de Guindos said.

The yield on Spain’s 10-year benchmark bond was little changed at 5.04 percent and the gap with similar German maturities widened to 324 basis points from 317 basis points earlier today.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net

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