Spain Faces Challenges to Meet Deficit Target as Elections Loom

Spanish Economy Minister Luis de Guindos may be too optimistic about his country’s fiscal performance.

While de Guindos told reporters in Brussels that faster economic growth will allow the government to meet its budget-shortfall goal this year, the European Commission and Spain’s fiscal watchdog aren’t so sure.

“We will certainly continue to monitor the situation in Spain,” EU Commission Vice President Valdis Dombrovskis said after a meeting of European Union’s finance ministers. “There appears to be some gap this year.”

The comments came after de Guindos said the Spanish economy would grow more than the 2.3 percent estimated by the Commission, putting the country on track to meet its 2015 budget-deficit target, set at 4.2 percent of output.

Prime Minister Mariano Rajoy, who faces a marathon of general, regional, and city-hall elections this year, is cutting taxes and expanding unemployment benefits, while at the same time attempting to comply with EU budget-deficit rules. Pressure for Rajoy to expand public-sector expenditure in the fourth-largest economy in the euro region is increasing as anti-austerity party Podemos led in at least 10 polls since November.

“There aren’t major doubts about Spain’s ability to comply with its budget goals,” said de Guindos. “The excess of growth via automatic stabilizers will allow” the government to comply with targets, he said.

Economic Outlook

Spain has been under the European Commission’s excessive-deficit procedure since 2009, after the public sector increased reliance on debt which is approaching 100 percent of the country’s gross domestic product.

Last month, the Spanish government increased its growth forecast for this year to 2.4 percent from 2 percent. That compares with the average 2.6 percent growth estimated by analysts of 18 institutions surveyed by the Spanish Saving Banks Foundation, which was cited by de Guindos to back up his assessment.

“We maintain our diagnosis that the public-deficit objective for 2015 is too demanding,” the Spanish Fiscal Watchdog’s Chairman Jose Luis Escriva said earlier Tuesday in a parliament committee in Madrid. “Since October, several favorable factors appeared for the deficit, but they tend to be neutralized by others.”

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