Brussels hands Spain deficit reduction extension

François Hollande’s election Sunday as the new president of France has had an immediate beneficial effect for Spain. The European Commission (EC) has decided to give Spain an extra year to reach the European Union deficit target of three percent of GDP -- which had been set continent-wide for the end of 2013 -- if Spain is able to consolidate its real estate-blighted savings bank sector and keep regional spending in check. The EC is expected to release the results of a detailed analysis of Spain’s finances on Friday.

“The Stability and Growth Pact does not only allow, but advises, a differentiation between member states taking into account their budgetary margin and economic situation,” said European Commissioner for Economic and Financial Affairs Olli Rehn.

After delivering a withering speech against the austerity measures being propelled by German Chancellor Angela Merkel and the European Union after his victory over Nicolas Sarkozy, Hollande further beat the drum of rebellion by saying that France would end the “inevitability” of austerity.

An EU summit meeting will look at the policy options to stimulate economic growth on May 23, Commission President Herman Van Rompuy announced on Tuesday.

Both the elections in France and Greece have been portrayed as a plebiscite against the zeal of Berlin and Brussels to wield the austerity blade on Europe’s flanks. Hollande, who campaigned on an anti-austerity platform, warned that mere spending cuts would do nothing to promote growth and could well fuel the rise of extremism in the continent. Far right and left parties took a large swath of the vote in France and in last weekend’s Greek elections as the masses cast their votes against the established political status quo. Greeks, particularly, blame their stagnant political system for their economic woes.

Merkel, however, assured Hollande that she was not for turning and the so-called fiskalpakt, signed by 25 member states, is set in stone. Merkel, who herself faces an electoral grilling in North Rhine-Westphalia next week after a disappointing return in Schleswig-Holstein for her Christian Democrats and coalition ally the Free Democrats, is finding that even at home austerity is a contentious issue.