Spanish Government Seeks Higher 2013 Deficit Goal Amid Recession

Spain is in negotiations with the European Commission to raise its budget deficit goal for 2013 to about 6 percent of gross domestic product from 4.5 percent as it prepares to update mid-term budget plans amid a recession.

The Spanish government is aiming at a figure of about 6 percent of GDP, said a spokeswoman for the Madrid-based Economy Ministry, who asked not to be named in line with government policy. She declined to comment on a press report that the government may cut its economic forecast for this year to a 1 percent contraction from 0.5 percent.

In Brussels, commission spokesman Olivier Bailly told reporters the EU isn’t in talks with Spain and that it needs to finalize its assessment on the nation’s budget performance. “We are, like with all other member states, in contact with the Spanish authorities to make our assessment more credible and more solid,” he said.

Spain is due to submit to the commission this month its mid-term budget plans or so-called “stability program.” The country has been under EU monitoring since 2009, when public overspending ballooned to 11.2 percent of GDP after the collapse of a real estate-fueled boom triggered an economic slump that is now entering its sixth year.

Yields Fall

The yield on Spain’s 10-year benchmark bonds fell seven basis points to 4.99 percent at 1:51 p.m. in Madrid. That compares with a euro-era high of 7.75 percent in July before the European Central Bank pledged to support the single currency. The spread with similar German maturities narrowed nine basis points to 3.68 percentage points.

“When it comes to the rumors about the extension of one or two years of the targets that the commission and the other euro-area member states could grant Spain, I must say that we are not in negotiations with the Spanish government,” Bailly said.

The commission, the 27-nation bloc’s executive, is waiting for Eurostat to release 2012 budget data for Spain on April 22 before taking a decision, Bailly said, referring to the EU’s statistic office. Prime Minister Mariano Rajoy, in power since December 2011, has said he cut the deficit to 7 percent of GDP last year from 9 percent in 2011. Including aid to the banking sector, the figure was 10.2 percent of GDP, up from 9.4 percent.

Rajoy said on March 20 that he expects to cut his forecast for economic growth this year. His prediction of a 0.5 percent contraction is smaller than the International Monetary Fund’s forecast of 1.5 percent and the EU’s 1.4 percent. The economy contracted 1.4 percent last year after growing 0.4 percent in 2011.

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