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Montoro Drops Plan for Spain Deficit Concessions After Backlash

May 30 (Bloomberg) -- Budget Minister Cristobal Montoro abandoned a plan to grant struggling regions easier deficit targets for this year following a backlash from the presidents of Madrid and Extremadura.

The budget deficit for the country as a whole will be shared “equally” between the regions, Montoro told reporters in Madrid yesterday, forcing those who’ve struggled most to make the harshest cuts. “Those who have taken the path to budget stability more rapidly will have to reduce less slowly,” he said. “We are going to share out the deficit. We are going to do it equally.”

Prime Minister Mariano Rajoy this month faced the biggest challenge to party discipline of his 17 months in office after former premier Jose Maria Aznar called on him to reverse his tax policy and Ignacio Gonzalez, regional leader of Madrid, rebelled over the plan to allow areas like Catalonia and Valencia easier spending limits.

In March, Montoro set up working groups to study varying deficit goals for the regions, aiming to give regions with deeper budget deficits last year laxer targets for 2013. Madrid’s Gonzalez and Jose Antonio Monago, president of Extremadura in the west of Spain, rejected the plan, saying it rewarded failure on the back of their regions, which had met targets.

Rajoy’s ‘Failure’

Rajoy’s attempt to broker a settlement “has been a failure and the project of having different deficit targets was creating more problems than anything else,” Jose Antonio Herce, a partner at Madrid-based consultancy firm Analistas Financieros Internacionales, said in a telephone interview.

The European Commission yesterday endorsed Rajoy’s plan to delay Spain’s budget consolidation process by two years. The premier plans to meet the bloc’s deficit limit of 3 percent of gross domestic product in 2016 instead of 2014.

“The government is going to have to use the margin of maneuver it obtained from the European Commission to try and make it easier for all the regions,” Herce said.

To contact the reporters on this story: Ben Sills in Madrid at bsills@bloomberg.net; Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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