Bloomberg News

EU Leaders Tell Spain to Be Prepared for Deeper Budget Cuts

March 02, 2012

European Union leaders signaled Spain must stick to its target for narrowing the budget deficit this year amid a weaker economy, highlighting Prime Minister Mariano Rajoy’s limited room to escape tougher EU rules.

At a Brussels meeting where they signed a German-inspired deficit-control treaty, EU government heads said “fiscal consolidation is an essential condition to return to higher growth” and urged euro-area nations such as Spain (EUGNEMUQ) to be prepared to make deeper budget cuts.

“Member states facing close market scrutiny should meet agreed budgetary targets and stand ready to pursue further consolidation measures if needed,” according to the draft of a statement that the 27 leaders are due to approve later today.

The EU is reinforcing rules on budget discipline in the 17- nation euro area to counter the Greece-triggered debt crisis that threatens the single currency. In addition to establishing a new fiscal treaty, European governments have bolstered the threat of sanctions against euro countries that breach the EU deficit limit of 3 percent of gross domestic product and debt ceiling of 60 percent of GDP.

The government of Rajoy, whose People’s Party government took over from the Socialists in December, is seeking to win more fiscal flexibility from the EU after Spain missed its deficit goal last year of 6 percent of GDP. The Spanish budget program approved by the EU sets a deficit target of 4.4 percent of GDP this year compared with an 8.5 percent shortfall in 2011 when the economy cooled.

“The circumstances that led us to the 4.4 percent are no longer in place at the moment,” Spanish Economy Minister Luis de Guindos told reporters in Brussels yesterday.

With Spain facing its second recession since 2009, Rajoy has already adopted a 15-billion euro ($19.9 billion) package of measures to narrow the deficit and would need to find another 25 billion euros, Moody’s Investors Service estimated, if the deficit goal remains unchanged.

To contact the reporter on this story: Jonathan Stearns in Brussels at

To contact the editor responsible for this story: James Hertling at

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