Bloomberg News

EU’s Rehn Says Spain Must Meet Budget Goal as Economy Slumps

January 31, 2012

(Updates with economy minister in fourth paragraph.)

Jan. 24 (Bloomberg) -- Spain must meet its 2012 deficit goal, European Union Economic and Monetary Affairs Commissioner Olli Rehn said, rejecting calls from Budget Minister Cristobal Montoro to ease the target as the economy shrinks.

Montoro urged the EU on Jan. 22 to review the 4.4 percent goal, which was set by the previous government amid forecasts of economic growth. The gap amounted to 8 percent of gross domestic product last year, more than the last administration’s 6 percent target, as the economy slipped back toward a recession.

“It is essential to meet the fiscal targets for 2012,” Rehn told reporters today in Brussels. “I’m aware of the regrettable news that the fiscal deficit in Spain seems to be significantly higher” than the target.

While Montoro called for the goal to be eased to take the shrinking economy into account, Spanish Economy Minister Luis de Guindos told reporters in Brussels that his government would stick to it. The Bank of Spain estimated yesterday that Spain’s economy will shrink 1.5 percent if the government succeeds in cutting the deficit by almost half this year.

The People’s Party government, in power since Dec. 21, announced 15 billion euros ($19 billion) of budget cuts at its second Cabinet meeting on Dec. 30 and has said more austerity will follow when it presents the 2012 budget at the end of March. The PP faces a regional election in the southern region of Andalusia, a traditional Socialist stronghold, on March 25.

“The Spanish government has taken prompt action to address slippages,” Rehn said, even as a “fiscal gap” persists.

--Editors: Jennifer M. Freedman, Jeffrey Donovan

To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net; Jones Hayden in Brussels at jhayden1@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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