Brussels asks Spain to clarify deficit-cutting plans for 2014

The European Union commissioner for economic and monetary affairs, Olli Rehn, on Wednesday asked Spain to clarify its plans for meeting its deficit-reduction target for 2014.

Speaking at a news conference in Brussels, Rehn said the government of Prime Minister Mariano Rajoy had taken “effective” measures to rein in the shortfall in its finances for this year and the next, but asked for concrete new initiatives to ensure Spain meets its commitments for 2014. “The measures announced so far for 2014 fall short of what is required,” Rehn said.

The Commission last week predicted that the deficit in 2014 would rise to 6.4 percent from 6.0 percent in 2013 reflecting the fact that a number of measures introduced by the government to address the shortfall were of a temporary nature.

Reversed steps

Economy Minister Luis de Guindos on Tuesday indicated that the increase in personal income tax introduced under the government’s austerity drive was likely to remain in place in 2014. De Guindos said the government was sticking to its forecasts for a deficit of 6.3 percent for this year, 4.5 percent the following and 2.8 percent in 2014.

Prime Minister Mariano Rajoy had suggested a week ago that the tax hike, which brings in 6.5 billion euros a year, could be reversed in 2014.

Asked if Spain had already done enough to merit a precautionary line of credit from the European Stability Mechanism, Rehn replied: “Spain is on track as regards taking policies that will help restore its competitiveness and the health of public finances.” He said Spain’s structural balance improved by 5.25 percent of GDP in 2012 and expects a further improvement of 2.25 percent in 2013.

"The estimated annual improvement in the structural balance this year and next year is in line with the effort required," the commissioner said. "Yet there are risks for next year; they stem partly from an optimistic macroeconomic scenario underlying the 2013 budget. There are also risks of budget slippages in the autonomous regions. It is vital to implement effectively the provisions of the stability law," Rehn said.

The commissioner said the issue of whether Spain should be given a new timeframe to bring its deficit back within the EU ceiling of three percent of GDP would be addressed in February.

De Guindos told the European Parliament in Brussels on Monday that fiscal consolidation should be imposed gradually in order not to further damage the economy.