Spain Faces Commission Verdict After Missing Deficit Target

  • 2015 budget deficit shortfall to be at 4.5%, Rajoy says
  • Spain has been in corrective arm of EU budget rules since 2009

The European Commission said it will assess the evolution of Spain’s budget shortfall after Acting Prime Minister Mariano Rajoy said his government missed the target set for last year.

The commission in May will issue an updated assessment of the Spanish deficit and it said Spain should submit an update of its draft budget as soon as possible, EU spokeswoman Annika Breidthardt said Friday. Spain’s 2015 budget deficit was at about 4.5 percent of its yearly output compared with a 4.2 percent of gross domestic product goal set by the Commission, Rajoy said Thursday.  

Spain has been under the EU’s excessive deficit procedure since 2009 after the bursting of a decade-long real estate bubble depressed the government’s finances. Rajoy’s government failed to meet last year’s deficit target goals even as the country grew at the fastest pace since 2007, and as the European Central Bank’s government bond purchase program reduced Spain’s financing cost to record lows.

Achieving further budget-deficit reductions may be even more challenging after a Dec. 20 election produced an inclusive result, forcing parties to seek alliances to form a new government.

“This is an economy that despite growing more than 3 percent only managed to reduce the deficit by around one percentage point,” said Ruben Segura-Cayuela, a London-based economist at Bank of America Merrill Lynch. “Going forward it’s hard to see a meaningful deficit reduction in the coming two years as political parties are far from agreeing on how to do so.

If Spain’s budget-deficit figures for last year are confirmed, it shows that the commission was correct, European Economics Commissioner Pierre Moscovici said Thursday. Spain needs to apply additional measures, which should be delivered by a new government, Eurogroup President Jeroen Dijsselbloem Thursday. Guindos said Spain could make further cuts if Spain’s economy grows.

“The fundamental, central, key element to comply with our budget goal is sustaining economic growth,” Guindos said in a press conference in Brussels Friday. Should Spain grows 3 percent in 2016 it’s possible to reduce the deficit another 1.5 percent points, so placing the ratio close to 3 percent, Guindos said.

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