Spain leaves the door open to revise deficit-reduction targets
Economy Minister de Guindos says any change would be in agreement with European partners
Spanish Economy Minister Luis de Guindos on Friday left open the possibility of shifting the timeframe for the government’s deficit-reduction program if the recession turns out to be deeper than forecast.
De Guindos was speaking a day after IMF Managing Director Christine Lagarde called for financially strained euro-zone countries such as Spain, Portugal and Greece to be given more leeway in reducing their public deficits.
“Given the circumstances and the fact that many countries at the same time go through that same set of policies with a view to reducing their deficit, it is sometimes better to have a bit more time,” Lagarde told a news conference in Tokyo, where the IMF is holding its annual meeting.
"That is what I have advocated for Portugal, this is what I have advocated for Spain, and this is what we are advocating for Greece.”
De Guindos noted that the European Commission had already recognized the weak state of the Spanish economy in conceding the government another year to bring its deficit back within the European Union ceiling of 3 percent of GDP. Revising deficit targets “already forms part of the general thinking” within the European Union, the minister said.
In its World Economic Outlook report issued earlier this week, the IMF estimated Spain’s economy would contract by 1.3 percent next year, almost triple the government’s forecast of a drop of 0.5 percent. It also questioned the government’s deficit-reduction figures, estimating a shortfall of 7 percent of GDP this year and 5.7 percent next year when the administration of Prime Minister Mariano Rajoy is targeting figures of 6.3 percent for 2012 and 4.5 percent for 2013.
The European Commission is due to present its revised forecasts for the European Union and the euro zone on November 7.
“At the start of November we will see the European Commission’s growth and deficit forecasts and on the basis of that if a decision is taken it will be in agreement with the rest of the European countries,” De Guindos told reporters in Tokyo. “As of just now, there is no change.”
Germany is opposed to any easing of the austerity drive within the euro zone. “The IMF has said time and time again that high public debt is a problem,” German Finance Minister Wolfgang Schäuble said in Tokyo on Thursday. “When there is a medium-term target, it doesn’t create confidence if you go in the opposite direction. When you want to climb a high mountain and start to go down, the mountain is even higher afterward.”
De Guindos said Spain does not feel under pressure to seek a second bailout from the European rescue funds. “No one has pressured me, neither in one direction or the other,” De Guindos said. Schäuble has said he does not believe Spain needs a second bailout.
De Guindos noted that the European Central bank’s bond-purchasing program is not limited in time and can be activated in any moment. “We will choose the moment we deem best,” De Guindos said.
The minister also downplayed the significance of Standard & Poor’s’ decision to downgrade Spain’s sovereign rating to just one notch above junk status. “Ratings agencies are always behind the markets,” he said. “The Spanish government is not going to act in accordance with what the agencies do.”
