Spain sent mixed messages on the state of its finances as Economy Minister Luis de Guindos said its 2012 deficit target can be met without more spending cuts, after telling European colleagues extra measures had already been prepared.
The Spanish government is facing mounting skepticism about its ability to narrow the budget gap without further austerity after the central government exceeded its full-year deficit target in the first six months due to the cost of propping up the regions. Spain has introduced more than 100 billion euros ($131 billion) of spending cuts and tax increases to try to limit the shortfall to 6.3 percent of gross domestic product.
“We think those measures are sufficient for meeting our objectives,” De Guindos said at a press conference in Nicosia, Cyprus today after a meeting of European finance ministers. “The Spanish government is committed to the budget deficit target.”
De Guindos is trying to balance his government’s domestic concerns -- thousands of people took to the streets of Madrid to protest against budget cuts today -- with the demands of European officials and investors that it rein in borrowing. He offered a more nuanced position to his European partners during yesterday’s talks, according to their accounts.
“The Spanish colleague very convincingly laid out that Spain is on the right track with its budget policy decisions and that Spain will fulfill its commitments,” German Finance Minister Wolfgang Schaeuble said at a press conference today. “He also said that if the worsening economic development” were to lead to “additional problems, they would take additional measures.”
Luxembourg Prime Minister Jean-Claude Juncker, who chaired the meeting, told reporters De Guindos pledged Spain would make more cuts if necessary to meet its budget targets while European Union Economic and Monetary Commissioner Olli Rehn indicated those measures have already been prepared by Spanish officials.
“Minister De Guindos today expressed very clearly that Spain is ready to take the necessary action to meet the fiscal targets,” Rehn said.
Spain’s attempt to restart its economy and boost tax revenue is being set back by deteriorating world economic prospects. The International Monetary Fund cut its forecast for 2013 global growth in July as the euro region slips deeper into recession.
Budget Minister Cristobal Montoro last month signaled the government will use the downturn as an explanation should he opt for more cuts.
“With what we’ve done already and what social security and employment have done, we’ll have enough margin so long as the economic scenario is supportive,” he said in an Aug. 16 interview.
---With assistance from Rainer Buergin in Nicosia. Editors: Andrew Atkinson, Craig Stirling