Bloomberg News

Draghi Critique of Spain’s Tax Increases Is Rejected by Montoro

June 17, 2013

Spanish Budget Minister Cristobal Montoro dismissed criticism from Mario Draghi that Spain has increased taxes too much as it tries to cut the deficit.

“The figures are the figures, the rest is opinion,” Montoro said today when asked about the European Central Bank (EURR002W) president’s comments at a press conference in Santander, Spain. “I keep reading that the adjustment has been done through tax hikes. How can people say that with the national accounts in their hand?”

Draghi this month urged European governments including Spain that are struggling to rein in their budget deficits to take the “difficult” decision to cut spending instead of raising taxes and risk damping economic growth. Spain delivered about 30 percent of its austerity measures through tax increases last year, Montoro said today.

The budget minister follows economy chief, Luis de Guindos, in rebutting Draghi’s criticism of a fiscal consolidation plan that the Spanish government says has been endorsed by both the European Commission and the ECB.

Almost a year after investors were soothed by his promise to do “whatever it takes” to protect the euro, and a month since he cut interest rates, Draghi signaled on June 6 that governments, not the ECB, should do more to fight recession and boost credit to businesses in countries such as Spain.

‘Easiest’ Path

“Fiscal consolidation in most countries has taken the shape of increasing taxes” which is “the easiest thing to do,” Draghi told reporters in Frankfurt in response to a question on the Spanish budget. “A better way would be the difficult way, namely to reduce unproductive government expenditure and reduce taxes together.”

Spain’s budget deficit rose to a three-year high of 10.6 percent last year after the government agreed a 41 billion-euro ($55 billion) European rescue loan to clean up its banks.

Banco Bilbao Vizcaya Argentaria SA Chairma Francisco Gonzalez, who appeared on the same panel as Montoro, urged the government to complete the restructuring of the banking system as quickly as possible.

“The financial reform will be finished when all institutions are in private hands and the financial system is functioning normally,” Gonzalez said. “We are on the right track.”

He declined to speculate on whether Spanish banks may need more capital from the European Union before a review of Europe’s banking system that the ECB is due to complete later this year.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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