The Funcas think-tank on Wednesday estimated that the government missed its deficit target for last year by a full percentage point as a result of a shortfall in the finances of the Social Security system and the failure of the regions to meet the goal set for them.
In its latest report on the economy, FUNCAS calculated that the deficit in 2012 came in at 7.3 percent of GDP, excluding stating fund for the banking sector. The government had set itself a target of 6.3 percent under its Stability and Growth Pact commitments with the European Commission.
Nonetheless, the author of the report, Ángel Laborda, praised the government’s efforts to get its financial affairs back into shape. “The results in terms of fiscal consolidation were considerable in (2012) and it is foreseeable that this will also be the case in 2013,” he said.
However, he also issued a warning not to take austerity top an extreme. “Forcing the machine more would provoke an excessive restrictive impact on growth in aggregate demand and employment, with negative consequences for the ongoing process of cleaning up the financial system and in the end run the process of consolidation itself,” Laborda argued.
Funcas estimated that the central government achieved a deficit of slightly under the 4.5 percent it had set for itself. That was offset by a shortfall of 0.85 percent in the Social Security system’s books. The think-tank put the deficit of the regions at 1.9 percent against a target of 1.5 percent.
Rajoy said relaxing the deficit target would send a wrong message to the markets
Funcas forecast the deficit for this year would come in at 5.6 percent of GDP, 1.1 percentage points above the goal of 4.5 percent agreed with Brussels. It attributed this mainly to the knock-on effect of the failure to reach the target for 2012 and because of economic projections different from those of the government.
The European Union’s commissioner for economic affairs, Olli Rehn on Monday suggested Brussels might be willing to offer Spain more leeway in meeting its deficit targets, which call for the shortfall to be brought back within the EU ceiling of 3 percent of GDP in 2014, already a year later than initially programmed.
Rehn noted that this has been the case for countries whose economic performance fell short of what was expected. The Spanish economy shrank 1.4 percent last year in what was its second recession in three years.
Separately, Prime Minister Mariano Rajoy on Wednesday rejected calls by some regions to ease the deficit target of 0.7 percent of GDP for this year. However, Rajoy left the door open to conceding them more leeway if circumstances permit.
Speaking in parliament, Rajoy said relaxing the target would send a wrong message to the markets at a time when the country is striving to consolidate its finances.
“If things change, and at the moment they haven´t changed, that would be the time to talk,” Rajoy said.