Rajoy's Budget Math Challenged by EU Before Spanish Election

  • Moscovici sees 2016 target missed by 0.7 percentage point
  • Spain should act to meet budget-deficit limit, Moscovici says

European economic affairs Commissioner Pierre Moscovici challenged Spain’s budget plans, posing Prime Minister Mariano Rajoy the choice of more cuts or a public dressing down just weeks before the country’s general election.

Moscovici said Spain will miss its budget-deficit target by 0.3 percentage point this year and 0.7 point in 2016 and the Spanish government will be asked to revise its program before euro-area finance ministers review the numbers again on Nov. 23. Commissioners were due to issue its formal opinion on Rajoy’s spending plans Tuesday but were unable to reach an agreement on their verdict.

“More time is needed for deliberations,” European Commission Vice President Valdis Dombrovskis told reporters at the European Parliament in Strasbourg.

Rajoy’s People’s Party is trying to hold off a challenge from the main opposition Socialists and the center-right insurgency of Ciudadanos in December’s general election. Rajoy’s strategy involves arguing that he’s best placed to consolidate the country’s economic recovery while glossing over the bank bailout he oversaw in 2012 and the party graft allegations that have enraged voters.

Spain should “take the necessary measures within the national budgetary process to ensure that the 2016 budget will be compliant with the stability and growth pact,” Moscovici said at a press conference in Luxembourg after a meeting of euro-area finance ministers Monday. “The ball will be in the Spanish government’s camp.”

Moscovici’s remarks were seized on by political rivals trying to chip away at the prime minister’s claims of economic success. Socialist Leader Pedro Sanchez, Rajoy’s main challenger, said the comments show that budget bill is government propaganda and the numbers don’t add up.

Economists at Banco Bilbao Vizcaya Argentaria SA, Spain’s second largest bank, backed up the commission’s analysis on Tuesday. Miguel Cardoso, the bank’s chief Spain economist, also forecast Rajoy will miss his target by 0.3 percentage point this year, Europa Press reported.

Rajoy did win support from German Finance Minister Wolfgang Schaeuble, one of the euro area’s most outspoken proponents of budget restraint.

Spain’s efforts to rein in its budget deficit are among the “most impressive” in the bloc, Schaeuble said Tuesday in Luxembourg. “All macroeconomic figures in Spain are going up; one must see from what a difficult starting point Spain has come.”

The Spanish government has insisted that the country will meet its targets to reduce the budget deficit to 4.2 percent of gross domestic product this year and 2.8 percent in 2016 with the economy growing at the fastest pace in eight years.

“For 2015 the discrepancy is very small,” Economy Minister Luis de Guindos told reporters Monday. “I’m convinced we’re going to meet the target and that puts us in a very good position for 2016.”

Before it's here, it's on the Bloomberg Terminal.