Prime Minister Mariano Rajoy on Wednesday announced that the public deficit for last year came in at 6.7 percent of GDP, without counting the European bailout to recapitalize the country’s banks.
Rajoy had previously said that the shortfall was under seven percent of GDP, while the European Commission said last Friday that it was around seven percent, without counting the some 40 billion euros Europe lent to Spain to clean up the banking sector. Brussels estimated the bailout was equivalent to 3.2 percentage points, meaning that based on Rajoy’s figure the overall deficit was almost 10 percent, more than the shortfall for 2011.
The government had set itself a target of 6.3 percent of GDP, but rather than paint the final result as a failure on the part of the administration, Rajoy focused on the reduction in the structural deficit – without including the impact of the economic cycle – of 3.5 percentage points, which he said had served to restore investor confidence. According to official figures, the domestic economy slipped back into recession last year, with GDP contracting 1.4 percent.
“The deficit figure we will send to the EC will in the end come in at 6.7 percent, which implies an enormous effort on the part of society as a whole because in structural terms the reduction will be 3.5 points,” Rajoy told Congress. “No other OECD country has achieved this. This increases confidence in Spain, and backs our belief that, even though it has yet to bear fruit, the economic policy we are pursuing is the right one.”
This backs our belief that the economic policy we are pursuing is right"
Rajoy pledged to continue to pursue fiscal consolidation and structural reforms, as well as complete the restructuring of the banking sector in order to return to growth and create jobs. “The most important of Spain’s goals are economic growth and creating jobs,” Rajoy said during a congressional debate.
The EC noted the figure given by Rajoy, adding this would need to be confirmed by the European Union’s statistical office Eurostat.
The EU commissioner for economic affairs, Olli Rehn, indicated at the end of last week that Brussels would take into account the recession the country suffered last year, and the fact this is expected to continue into this year. In practice, this could mean Spain being given more time to bring its deficit back within the EU ceiling of three percent of GDP. Currently, it is committed to doing so in 2014, with the target for the deficit for this year set at 4.5 percent.
Brussels estimates that Spain’s economy will shrink by almost three times more the Rajoy administration’s forecast of a decline of 0.5 percent in 2013.
Meanwhile, Economy Minister Luis de Guindos said the government would ease the burden on taxpayers next year. “These are commitments we have undertaken,” the minister said in an interview with Reuters. “We will have to combine this commitment with continuing efforts in the area of fiscal consolidation,” he added.
De Guindos downplayed the spike in Spain’s risk premium on Tuesday as a result of contagion from Italy because of the indecisive outcome of the general elections there. “We shouldn’t pay too much attention to short-term market reactions, because there is always an over-reaction,” he said. “Italy in the end will have a stable government.”