Prime Minister Mariano Rajoy told his fellow Spaniards they’ve weathered the worst of the crisis as he announced the smallest budget deficit in four years.
Spain’s 2012 budget gap was less than 7 percent of gross domestic product, excluding the cost of bailing out banks, and gains in competitiveness have laid the foundations for a return to economic growth, Rajoy told lawmakers in Madrid today. The yield on 10-year debt dropped 6 basis points to 5.14 percent at 2:50 p.m. in Madrid, almost 250 points below its July peak.
“The worst of the threat is passing into memory,” the premier said as he opened the State of the Nation debate in parliament. “We have other challenges to face, but they will not be so grave.”
Rajoy is seeking to turn a corner after the deepest budget cuts in Spain’s democratic history and a corruption scandal roiled his party. He was spared having to request a full bailout by the European Central Bank’s pledge to backstop euro-region debt last year.
The premier, who denies reports in El Pais newspaper that he received more than 250,000 euros ($335,000) in illegal cash payments, said he’ll toughen sentencing for those convicted on corruption charges and force political parties to disclose more details of their financing.
“Spain is a clean country which is going through a difficult time and seeing corruption cases emerge just like any other,” Rajoy said. “Disseminating the idea that Spain is a corrupt country is profoundly unfair.”
The government will spur 32 billion euros of financing for small businesses through the state-owned Instituto de Credito and introduce a suite of tax breaks for smaller companies and entrepreneurs aimed at reducing youth unemployment of more than 50 percent and kick-starting economic growth, Rajoy said.
Economists surveyed by Bloomberg News forecast a budget deficit of 8 percent of GDP for last year, compared with a 6.3 percent target set by the European Union. The number includes European aid to recapitalize Spanish banks, which Rajoy’s figure doesn’t, and matches the European Commission’s November prediction. The commission’s latest assessment of the Spanish economy is due on Feb. 22.
“The question is whether this deficit number may be revised in September, as was done last year,” Ignacio Conde-Ruiz, an economist at the Applied Economic Research Foundation in Madrid, said in an e-mailed response to questions. “There are a lot of doubts about the adjustment in the regions which won’t be cleared up until the full breakdown has been published.”
Spain’s budget deficit was 9.4 percent of GDP in 2011, according to Eurostat’s most recent data, compared with Rajoy’s first estimate of 8.5 percent reported about a year ago.
The government plans to discuss the pace of its budget cuts with the commission and the International Monetary Fund to ensure the economic slump doesn’t worsen, Budget Minister Cristobal Montoro said last week. Economy Minister Luis de Guindos has said he wouldn’t rule out an easing of Spain’s deficit goals.
While the Treasury has already covered almost 20 percent of its planned gross mid- and long-term debt issuance for 2013, it faces its highest borrowing needs since 2005, according to UBS AG. Its fast-tracked issuances are threatening to saturate the market at a time when debt supply is also fueled by companies and government-backed bodies.
The government is counting on strong exports and a reduction in its current-account deficit to restore investor confidence and contain borrowing costs to help pave the way to a return to growth as soon as this year. Data yesterday showed Spanish exports rose to their highest level since records began in 1971 even as a recession spread across the euro region.
“A year ago, nobody looking at Spain from outside would bet on it,” Rajoy said. “Today, no one would say we could leave the euro.”