Madrid accepts Eurogroup decision to clip budget overshoot figure

Spanish Economy Minister Luis de Guindos has said that the government accepts the budget-deficit objective of 5.3 percent of GDP imposed by Brussels at a Eurogroup meeting of EU finance ministers on Monday evening. Before entering a meeting in Brussels on Tuesday morning, De Guindos told reporters that “Spain is absolutely committed to the budgetary adjustment.”

Prime Minister Mariano Rajoy had surprised his European colleagues at the last EU summit by announcing that his government, which came to power last December, was setting a spending ceiling for the 2012 budget which entailed a 5.8-percent overshoot, when the figure already agreed with the European Commission for this year had been 4.4 percent. The Popular Party (PP) administration argued, however, that the expectation that Spain will fall back into recession this year and the failure of the previous Socialist government to meet its deficit target in 2011 meant that 4.4 percent was unrealistic.

The PP administration has insisted all along that the important target that must be met is that of three percent of GDP at the end of 2013.

Thanks to the Eurogroup decision, ministers in Madrid must go about working up a state budget for the current year which includes a further five billion euros in cutbacks, given that each percentage point of deficit is equivalent to around 10 billion in public spending. Rajoy’s government was already preparing to cut some 30 billion euros from the budget.

Speaking in Madrid, Foreign Minister José Manuel García-Margallo argued that the fact that Europe had allowed his government to raise the deficit target from the original 4.4-percent figure was a victory for Spain. “The Spanish government has won this battle,” he told radio station Cadena Ser.

The Cabinet is expected to finally approve the 2012 budget on March 30, Rajoy announced on Monday.

Without discussing figures, Rajoy described it as being “a difficult budget for difficult times.” The long-awaited budget will be approved just five days after the important elections in Andalusia, where the Popular Party (PP) is expected to win in a region governed by the Socialists for three decades.

The prime minister — who made his remarks during the presentation of a 35-billion-euro fund that will go to pay suppliers owed money by cash-strapped regional and municipal governments — also announced that besides a leaner budget the government will “at the same time” have to “make important decisions.”

“This is going to be a parliamentary term filled with reforms,” he said, mentioning that changes will be made in education, energy, justice and public services.

The Organization for Co-operation and Economic Development said on Monday that it has seen “positive changes” in major European economies, including Spain. But euro-zone officials fear that by allowing Spain to soften its deficit target other countries may follow suit, potentially undermining the EU’s strict budget rules. But nations such as Belgium, Portugal and the Netherlands have all said that they will stick with their own objectives.

Economy Minister Luis de Guindos said that Spain’s efforts to rein in spending have been praised by the Commission and that the country was going to compensate for what happened last year, when Spain posted a deficit 2.5 percentage points higher than expected, by introducing “structural adjustments.” After De Guindos had met with German counterpart Wolfgang Schäuble, the Berlin official told reporters that “Spain has made great progress.”

In the last few weeks, Rajoy has been making calls to German Chancellor Angela Merkel and French President Nicolas Sarkozy to canvas their support in allowing Spain some leeway on the deficit this year. Last week EC auditors traveled to Spain to look at the country’s accounts over a two-day period.