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Spanish Budget Minister Cristobal Montoro signaled for the first time the nation may miss its budget goal, as the government tries to narrow the deficit without tipping the economy deeper into its five-year slump.
Spain is aiming for a deficit of 6.3 percent of gross domestic product this year, while the European Commission estimates a gap of 8 percent, or one percentage point less if aid to banks is excluded.
“The formal target continues to be what it is, the formal one, and the European commissioner himself said he estimated the deficit would be around 7 percent,” Montoro told reporters late yesterday in Madrid, referring to Economic and Monetary Affairs Commissioner Olli Rehn. “But the important thing is to reduce the deficit, the quicker the better, without deepening the recession as a result -- that’s the limit.”
Prime Minister Mariano Rajoy is trying to shrink the deficit to stave off a European bailout even with the economy suffering its second recession in three years. As austerity measures prompt street protests while failing to tame borrowing costs, Rehn eased pressure on Spain on Nov. 14, saying the country was doing enough to reorder its finances.
Montoro said Spain’s 17 semi-autonomous regions trimmed their shortfall to 1.14 percent of GDP in the first nine months, compared with 2.2 percent a year earlier. Including the impact of payments to the regions that the central government brought forward, the shortfall was 0.93 percent, he said.
Still, the minister said regions must continue to rein in spending to reach their share of the deficit goal, which is 1.5 percent of GDP at year-end. The government will make sure the states, which control schools and hospitals, implement their budget pledges in the last quarter, he said.
“Is the 1.5 percent deficit target achieved? No,” Montoro said.
Most regions are locked out of financial markets and the central government created an 18 billion-euro ($24 billion) bailout fund in July to spare them from default. The central government plans to extend the fund that was designed as a one- off for another year and is calculating how much it will need to do so. The central government alone plans to issue 207 billion euros of gross debt next year, according to the budget.
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