Spain Needs ‘Diet’ to Narrow Budget Gap, Employers Say

March 21 (Bloomberg) -- The Spanish government has failed to properly reform public spending and should deliver further cuts to tackle one of the highest budget deficits in the European Union, Spain’s main business lobby CEOE said.

“It’s a question of management, public spending has to be put on a diet,” Chairman Juan Rosell Lastortras said in an interview in his office in Madrid on March 19. “The state should fund only what it can afford to and as long as investments are profitable.”

Nearly two years after securing a bailout, Prime Minister Mariano Rajoy hasn’t manage to curb overspending in the region’s fourth-largest economy. While Spain’s borrowing costs have dropped to pre-crisis levels and the budget deficit is narrowing, the European Commission has warned it could widen again next year without further action.

“There hasn’t been a real restructuring,” Rosell said, referring to the multiple levels of government sharing power throughout the Iberian nation. Likewise, spending in education and health care could be reduced and the government has scope to trim wages and headcount in the public sector, he said.

The European Commission said last month that unless Spain agrees to more budget cuts, its deficit will reach 6.5 percent of gross domestic product in 2015, above its target of 4.2 percent, even as growth accelerates. The deficit may narrow to 5.8 percent this year from 7.2 percent in 2013, according to the commission.

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Zoe Schneeweiss, Fergal O’Brien