A week after Spanish Prime Minister Mariano Rajoy was sworn into office, ending a 10-month political paralysis, the Popular Party (PP) government is promising that Spain will meet European Union deficit targets.
Speaking in Brussels on Monday, Economy Minister Luis de Guindos announced a new budgetary adjustment “in the coming weeks.”
Jeroen Dijsselbloem, Eurogroup president
The government wants to have a new budget ready by the end of the year that will include measures to meet the 2017 deficit target of 3.1% of GDP, said De Guindos.
But he also expressed hopes that Spain will not have to slash €5.5 billion of spending, as Brussels expects it to do, if the pace of economic growth is better than the forecast of 2.3% of GDP in 2017.
The Spanish government is forecasting growth of 2.9% for this year. The IMF and Spanish lender BBVA have set that figure at 3.1%.
On Monday, EU officials acknowledged that the Spanish economy is doing better than expected.
“We have discussed whether the recovery in Spain is due to the fact that there was no government,” joked Jeroen Dijsselbloem, president of the Eurogroup, at the end of a meeting of economy and finance ministers.
Spain made a similar promise to meet deficit targets in 2015, but ultimately overshot its goal by €10 billion. The EU wants the Spanish deficit to drop to 4.6% of GDP by the end of 2016.
De Guindos asserted that Spain can meet that goal “comfortably, based on the measures that have already been adopted [raising corporate tax].”
In August, the EU decided to cancel a fine against Spain and Portugal for failing to correct their excessive deficits, and gave them extra time to bring this figure below 3% of GDP.
Spain was told to bring its deficit down to 4.6% of GDP in 2016, to 3.1% of GDP in 2017 and to 2.2% of GDP in 2018.
But Brussels noted that Spain’s new budget should include structural cuts of some €5.5 billion, equivalent to 0.5% of GDP.
However, Madrid figures that as long as the targets are met year on year, Brussels will not mind whether it is the result of structural cuts or of a stronger economy.
The government wants to have a new budget ready by the end of the year, but will face opposition in Congress
De Guindos has already suggested that Spain’s economy will grow more than expected. For the state, a growing economy means higher tax revenues and lower expenditure on unemployment checks. Madrid is hoping that this will be enough to improve the state’s finances, thereby reducing the need for cuts.
Meanwhile, back in Madrid, Finance Minister Cristóbal Montoro told a group of journalists that the government will review economic forecasts to reflect the economy’s improved performance, with a view to convincing Brussels that it will not be necessary to cut €5.5 billion from the budget.
Montoro said that if the economy grows above 2.3% of GDP in 2017, the increased state revenues will make it unnecessary to make those harsh structural cuts.
He added that he wants to negotiate the budget with the main opposition parties to ensure a smooth passage through parliament. But the PP is heading a minority government and faces a mostly hostile Congress that has pledged to fight any further social cuts.
In theory, Brussels wants cuts to the structural deficit – not the cyclical one that depends on higher or lower growth – and could demand more reforms.
But the political winds are blowing in Spain’s favor: with the EU’s popularity at a low following a wave of populism and the Brexit vote in Britain – and several national elections coming up – Brussels is opting for a flexible attitude towards countries that have already made efforts to reform and which continue to support EU membership.
English version by Susana Urra.