EU Sees Spain Missing Deficit Goal, Adding to Pressure for Cuts

  • Commission says Spain will miss targets in 2015 and 2016
  • Deficit demands to pose headache for next government in Madrid

Spain is set to miss its budget-deficit targets for 2015 and 2016, the European Commission said Thursday, adding to the problems awaiting the next administration as talks to form a new government continue.

The budget shortfall was 4.8 percent of output in 2015 compared to the commission’s limit of 4.2 percent, the commission said. Spain has pledged to bring its deficit below 3 percent in 2016 and the commission projects a gap of 3.6 percent.

While Spain’s economy is growing at the fastest pace in eight years, the commission said that Acting Prime Minister Mariano Rajoy eased off on efforts to rebalance the budget in the run-up to December’s general election. Government expenditure accelerated in the second half of last year with notable increases in public investment, the commission said.

Rajoy managed to bring Spain’s budget shortfall down from 10.4 percent of gross domestic product in his first year in office, but even so, he’s missed his target every year.

European officials are demanding revisions to Spain’s 2016 spending plans to correct the overshoot, creating a headache for the next government. Socialist leader Pedro Sanchez is negotiating with other parties to form a “progressive” coalition after December’s election left no group with a clear majority. If he succeeds, he will inherit a slowing economy, a bigger deficit and rising debt, according to the report.

The commission sees Spain’s economy losing some momentum, expanding by 2.8 percent in 2016 and 2.5 percent in 2017. Meanwhile, the country’s debt-to-GDP ratio, which has almost tripled since the start of the financial crisis in 2007, is expected to peak at 101.2 percent this year, before falling back to 100.1 in 2017.

Last month, European Union Economic Affairs Commissioner Pierre Moscovici told Bloomberg Television that Spain will have to address the deficit question “seriously” in the spring and that “some additional measures” may be needed.

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