Spanish Prime Minister Mariano Rajoy said there is a case for easing budget-deficit targets set by the European Union as the recession undermines tax revenue.
“I think what a lot of other people think,” Rajoy told the Spanish senate yesterday. “Things could be done more calmly, taking into account especially that we are in a recession, but in any case I can’t give up on Spain’s commitments.”
Rajoy’s comments undercut Budget Minister Cristobal Montoro’s insistence that Spain can stick to the path of budget consolidation demanded by the EU even after the Bank of Spain said the euro area’s fourth-largest economy contracted for a fifth quarter between July and October.
“In 2012, we definitively will comply with our target,” Montoro said as he presented the 2013 budget to the Parliament in Madrid. The EU has set Spain a deficit goal of 6.3 percent of gross domestic product this year, after overspending amounted to 9.4 percent last year, the same as Greece’s and the second-highest shortfall behind Ireland.
Spanish bonds fell for a fourth day after Moody’s cut the credit ratings of five regions and the Bank of Spain said the recession will worsen in coming months and jeopardize budget targets. Spain’s 10-year borrowing costs rose 6 basis points to 5.7 percent at 11:40 a.m. in Madrid, compared with 5.3 percent before European leaders dismissed discussing further aid for the country last week.
Rajoy didn’t mention seeking aid even as he praised the European Central Bank’s offer to help lower countries’ borrowing costs.
“The ECB has set up a mechanism to purchase a country’s bonds in the secondary market if it requests it, that’s an important step forward,” he said.
ECB Governing Council member Ardo Hansson today told reporters in Tallinn, Estonia, that it can’t be ruled out that Spain may be able to avoid a bailout. Economy Minister Luis de Guindos yesterday told lawmakers that Spain’s access to funding has improved.
“We are starting to see foreign investors coming back to back Spanish debt purchases,” he said. “That is fundamentally due to two reasons -- because the government is doing what it has to do, and because we are all acting to dissipate doubts on the euro’s future.”