Government may ease region’s deficit-reduction targets

The administration of Prime Minister Mariano Rajoy is willing to cut the regions some slack in the austerity program imposed on them by Madrid if the European Commission eases the deficit-reduction timetable it has set for Spain, government sources said Monday.

The EC is due on Friday to unveil its budget objectives for euro-zone member states on Friday, and is expected to allow Spain more room to bring the shortfall in its books back within the European Union ceiling of three percent of GDP in recognition of the fact the Spanish economy slipped back into recession last year, a situation that is forecast to extend into this year.

Currently, the schedule for Spain is to bring the deficit down to 4.5 percent of GDP this year and to 2.8 percent in 2014. The goal for last year was 6.3 percent of GDP, not including the European bailout to recapitalize the banks. The final figures have yet to be released, but the government is expected to have missed the target, with experts estimating a shortfall of around seven percent of GDP.

The regions, which were largely responsible for the state missing its deficit target in 2011, were given a target for last year of 1.5 percent of GDP. The goal for this year is 0.7 percent. A number of regions have already released their deficit figures for 2012, including Madrid, where the shortfall was 1.13 percent, Extremadura (0.97 percent), Castilla-La Mancha (1.48 percent), Castilla y León (1.38 percent) and La Rioja (1.42 percent).

However, a number of the larger regions, which make significant contributions to the national economy, have said they will not make the 1.5-percent target. Catalonia and Andalusia have indicated that their deficit will be around two percent of GDP, while Valencia and the Balearics have also said they will not meet the 1.5-percent figure.