Spain wants Brussels to ease 2013 deficit target to six percent

Spain has proposed to the European Commission that its deficit-reduction target for this year should be set at 6.0 percent instead of the figure of 4.5 percent previously agreed, which it wants to achieve the following year. However, Brussels is pushing for a target of 5.5 percent of GDP. The shortfall last year was almost seven percent.

Government sources say the Popular Party administration of Prime Minister Mariano Rajoy is also looking for the Commission to grant it another two years to bring the deficit back within the European Union ceiling of three percent of GDP, but Brussels wants initially to grant only an additional year in order to maintain the rhythm of fiscal consolidation. Madrid is currently set to meet that goal in 2014.

The need to cut Spain some slack stems from the fact that the Spanish economy has slipped back into recession for the second time in four years. The Commission also acknowledges that Spain has made a big effort in getting its financial house back in order, trimming three percentage points off its structural deficit last year. "Spain fulfills the two premises necessary for easing its fiscal path," European sources said on Friday.

The government is in the process of revising its macroeconomic assumptions, and is expected to increase its estimate for the contraction in GDP for this year to one percent from 0.5 percent. The revised figure is still more optimistic than the Commission itself, which is predicting a decline in output of 1.5 percent.

The government expects the country to return to growth in 2014, with GDP rising somewhat less than one percent. It predicts activity will cease to shrink in the third quarter of this year before initiating a gradual improvement.

Contact between Brussels and Madrid in the past few weeks has been constant, and Economy Minister Luis de Guindos is due to meet with the EU commissioner for economic affairs, Olli Rehn, shortly after the Easter holidays to thrash out the final figures.