Unemployment rises as deficit-reduction target thrown into question

Further doubts were sown Friday about whether Spain would meet its deficit-reduction target for the year as the outgoing Socialist government questioned the Social Security system's ability to deliver the surplus called for in the budget.

The secretary of state for Social Security, Octavio Granado, said there were "uncertainties" about whether the Social Security system could post its targeted surplus of 0.4 percent surplus of GDP because of the persistent deterioration of the labor market.

Granado was speaking after the Labor Ministry said jobless claims in November rose to a record 4.42 million as the hoped-for improvement in the job market at the end of the year failed to materialize because of the renewed downturn in the economy.

The government is aiming to trim the shortfall in its finances from 9.3 percent of GDP to 6 percent this year, with the Social Security surplus expected to help partly offset deficits by the central government, the regions and the country's municipalities.

Analysts have already questioned the region's ability to reach their target of a combined deficit of 1.3 percent this year after the shortfall in the first nine months of the year reached 1.2 percent.

Castilla-La Mancha, whose shortfall could hit 9.7 percent this year, on Friday announced further spending cuts of 350 million euros, which include a reduction of 3 percent in civil servant wages in the region and an extension of their working week, as well as the privatization of hospitals. The latest cuts come on top of the 1.815-billion-euro austerity plan announced at the end of August.

With the euro-zone sovereign debt market still in turmoil, Prime Minister-elect Mariano Rajoy is making cutting the deficit one of the key cornerstones of his mandate.

Granado told a news conference on Friday that outlays by the Social Security were in line with what was expected, but doubts lay on the side of revenues. The number of people signed up with the Social Security system dropped 2.07 percent in November to 17.25 million.

According to the latest available figures, the Social Security system posted a surplus of 5.61 billion euros in the first 10 months of the year, a fall of 44.3 percent from a year earlier. The government has to face a payment of 855 million euros to compensate retirees receiving the minimum pension for the loss of purchasing power due to inflation coming in well above the administration's official forecast.