SPAIN CAME under pressure to explain its defiance of EU fiscal targets this year as euro zone finance ministers took further steps to finalise the second Greek bailout.
The country’s forthcoming budget was the prime focus as the ministers met in Brussels after Madrid declared this year’s deficit will be higher than the EU target.
They also took stock of Greece’s huge debt restructuring last week, with euro group president Jean-Claude Juncker, saying the final decision will be made tomorrow.
Given the ongoing effort to toughen the enforcement of EU budget rules in the fiscal treaty, the unilateral declaration by prime minister Mariano Rajoy is seen in European circles as an act of bad faith.
In question now is whether other member states agree to relax this year’s target and whether next year’s target can be sustained in that event.
Mr Juncker said there would be no decision last night or at a follow-on meeting today.
Some countries are already resisting any leeway for Spain, saying it is important to demonstrate the EU’s newly reinforced budget-surveillance system works in practice. All governments were obliged to maintain their fiscal targets, said Austrian minister Maria Fekter.
“Spain has to make an effort. We are also monitoring the other states so we won’t modify the first time round. We’ve got to be tough in the first round of monitoring so that everyone knows we’re serious,” Ms Fekter said.
Obliged under an EU-approved plan to cut the budget deficit to 4.4 per cent this year and to 3 per cent in 2013, the Spanish government wants more headroom in a budget due next month, while maintaining the target for 2013.
European officials remain sceptical, saying the agreed plan was credible, but Spain insists its situation has worsened since its formulation last year.
“From 2.3 per cent growth, we are going to have a fall in economic activity of 1.7 per cent,” economy minister Luis de Guindos told reporters in Brussels.
Mr de Guindos met his German counterpart, Wolfgang Schäuble, in the hours before the ministers gathered. “Spain’s commitment to the fiscal rules is absolute,” he said. “What Spain is going to do today is going to explain the figures for the close of 2011 and simultaneously we are going to present our consolidation and reform efforts for 2013.”
Mr Schäuble gave little away as he prepared for the meeting. While insisting Spain would not become a second Greece, he gave no indication as to whether Europe would agree to relax the budget targets.
“He’s relatively new in office so we wanted to take some time today to have a more intensive exchange in private,” Mr Schäuble said of the Spanish minister.
“Spain has made great progress. Financial markets also see it that way, but of course we’re all still on a tough path. But the experiences and developments of the past weeks and months show we are on the right path and we’re all determined to continue this path successfully.”
Other countries expressed mixed views.
Minister for Finance Michael Noonan was open to the Spanish approach but French minister François Baroin said there was no alternative to the austerity course.
“They’re a new government and they will make their case, obviously, and I expect that there will be a discussion later in the evening on that,” Mr Noonan said. “I have no foreknowledge of what the positions will be, but it seems to me that new governments should be given a certain amount of flexibility.”
Mr Baroin said Spain and other countries with a contracting economy or high deficit must focus on reducing deficits and making savings.
“There is no other path. Any other line doesn’t take into account the reality of the world economy today.”
