Spanish Deputy Prime Minister Soraya Saenz de Santamaria said she used her visit to the U.S. today to highlight the country’s efforts to curb its deficit as the country battles a deepening recession.
Saenz de Santamaria said she discussed the crisis and the future of the euro with U.S. Treasury Secretary Timothy F. Geithner and International Monetary Fund Managing Director Christine Lagarde in meetings in Washington.
“I was able to explain to them directly the Spanish strategy that we are following right now in order to accomplish our public deficit goal and the ambitious program of structural reforms that we are putting in place,” Saenz de Santamaria told reporters. “We’ve analyzed the European situation, the problems of the euro and the situation that the euro zone is going through at the moment.”
Spain has the third-largest budget gap in the euro region, comparable to Greece’s. Prime Minister Mariano Rajoy yesterday repeated a call for European authorities to support his government’s efforts to cap its deficit. The European Commission is willing to ease Spain’s “steep consolidation” process by giving it an extra year to bring its deficit below euro-area limits as long as the government enacts a solid two-year budget, Economic and Monetary Commissioner Olli Rehn said today.
Rajoy, in power since December, pledged in March to reduce overspending by the equivalent of 3.6 percent of gross domestic product this year to cut the budget deficit to 5.3 percent of GDP and reach the European Union limit of 3 percent by 2013. The shortfall was 8.9 percent last year.
Bank of Spain Governor Miguel Angel Fernandez Ordonez today said meeting deficit targets will be “tremendously arduous” on possible lower tax receipts and higher spending. In addition, Spain needs to bail out lenders still reeling from the collapse of the real-estate boom while its own access to funding increasingly depends on domestic banks being kept afloat by the European Central Bank’s refinancing operations.
Spain’s unemployment rate is the highest in the 17-nation euro area at more than 24 percent, and the Bank of Spain this month said the economy continued to shrink in the second quarter.
Bankia SA (BKIA), Spain’s third-biggest bank, was nationalized on May 9 and the new management has asked for 19 billion euros ($23.5 billion) of public money to clean up its balance sheet.
The financial system faces difficulties across Europe, not just in Spain, Saenz de Santamaria said, without mentioning any lenders by name.
“It’s not a problem of Spain as a nation but more a problem of our financial system that might have needs just like at some other times other countries and just like other banks and other European countries might be needing right now also,” Saenz de Santamaria told reporters.
Lagarde said today there was no plan to provide financial support to Spain, in response to an article to that effect in the Wall Street Journal.
“There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support,” Lagarde said in a statement after a meeting in Washington with Saenz de Santamaria.
As for whether the trip was aimed at asking for financial aid, Saenz de Santamaria said the visit was “planned months ago, but the trip has turned into a great opportunity to meet the decision makers at different levels and to show them the important efforts that Spain is taking to exit the crisis and emerge stronger.”
To contact the reporters on this story: Meera Louis in Washington at email@example.com; Ainhoa Goyeneche in Madrid at firstname.lastname@example.org
To contact the editor responsible for this story: Chris Wellisz at email@example.com