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Spain Fends Off Criticism on Banks as EU Introduces Reviews

Spain Fends Off Criticism on Banks as EU Introduces Reviews
Elena Salgado, Spain's finance minister, said lower premiums would undermine the pension system and an offsetting value-added tax increase would sting consumer spending. Photographer: Jock Fistick/Bloomberg

Spain blunted European Union criticism of its handling of savings banks and tax policy, persuading the EU to water down judgments issued as part of a new economic-policing system.

The non-binding recommendations, to be issued by EU finance ministers on July 12 in Brussels, urge Spain to “monitor closely” the reorganization of savings banks, softening an earlier plea to “reinforce” the restructuring, documents obtained by Bloomberg News show.

Spain’s case, and concessions to Belgium, France, Malta and Cyprus, show the obstacles faced by central EU authorities in putting their stamp on national economic policies, even as they struggle to contain the sovereign-debt crisis.

“National interests tend to dominate the debate,” said Ken Wattret, chief euro-area economist at BNP Paribas SA in London. “Governments are not doing a good job convincing markets that they will do whatever is necessary to stabilize the situation.”

The first draft of the recommendations was issued by the European Commission, the bloc’s central regulator, on June 7 and endorsed in principle by government leaders at a June 24 summit.

The detailed recommendations, capping the bloc’s first-ever “European Semester” of policy coordination, weren’t completed by government representatives until yesterday and are set to be rubber-stamped next week.

Commission spokesman Amadeu Altafaj didn’t immediately reply to a voicemail seeking comment. A Spanish Finance Ministry spokesman who declined to be named said Spain had made its arguments to the commission.

‘Positive Consequences’

In Spain’s case, the EU’s original doubts about a Feb. 18 law on savings-bank consolidation were scaled back, replaced with praise for the law’s “positive consequences” for the banks’ balance sheets.

The EU also ditched a call for a cut in Spain’s social-security premiums in order to make hiring more attractive, replacing it with an appeal to improve “the efficiency of the tax system.”

That reflected lobbying by Spanish Economy Minister Elena Salgado, who said lower premiums would undermine the pension system and an offsetting value-added tax increase would sting consumer spending.

Spain and France also persuaded the EU to soften the criticisms of the economic growth assumptions to be used in their 2012 budgets, upgrading them to “favorable” from “too favorable.”

Belgium succeeded in getting a numerical target for deficit cuts excised from the text, arguing that its caretaker leaders aren’t able to make commitments for future governments.

Belgium has been without a fully empowered government for more than a year. The odds of forming a new coalition receded yesterday when the largest party in the northern Flanders region, the N-VA, balked at a proposal for nine-party talks.

The final version pushes Belgium to get its deficit under the EU limit of 3 percent of gross domestic product in 2012, and warns that France may need further cuts to do so by 2013.

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