Moreover, some in Brussels accuse Spain of artificially inflating the 2011 deficit so as to better meet its interim target.
Those are contradictory accusations actually. If the deficit is artificially inflated, it should be easier to make the targets.
Should Spain come up with the numbers to show it can hit a 3% target in 2013, then the EMU bureaucrats may give Spain some leeway on the dates and interim targets. Otherwise Brussels threatens to fine Spain .2% of GDP, roughly 2 billion euros.
From El Economista via Google Translate: Brussels Presses Spain for Budget Cut Details
The finance ministers of the eurozone on Monday asked the Spanish representative, Luis de Guindos, to announce all the cuts and adjustments Spain will make in budgets this year and next to reduce the deficit from 8.5% in 2011 to 3% in 2013.Spanish unemployment exceeds 23% with youth unemployment at 49%. Austerity measures to further reduce the budget deficit from 8.5% to 3% over two years simply are not realistic.
If Spain introduces "new and real measures" that will not endanger the fulfillment of the Stability Pact, then the Eurogroup would be willing to negotiate relaxing the deficit target this year (which the Government has placed unilaterally in 5.8% instead of 4.4% agreed with the EU).
However, if De Guindos does "not convince" the EMU that Spain will respect its commitments, the Eurogroup will leave the way open for the Vice President of the Commission responsible for Economic Affairs, Olli Rehn, to reactivate the excessive deficit procedure penalty that could ultimately a fine of up to 0.2% of GDP (about billion euros).
The Eurogroup believes that the prime minister, Mariano Rajoy, has created "surprise" and "much confusion" by announcing unilaterally after the Spring European Council the new deficit target for 2012. The normal thing would have been negotiations with the Commission at the technical level to "seek a solution" with the Eurogroup with "no drama". Rajoy has done the opposite.
"Most of the Eurogroup states are now afraid that the Spanish case sets precedent" just as the EU has just adopted a tightening of the Stability Pact and a new treaty to strengthen fiscal discipline."
The Eurogroup also looks more explanation on the reasons for the budgetary slippage of 2.5 points in 2011, especially considering that "some analysts, say this figure is inflated by domestic political reasons."
EMU officials want detailed and specific measures as to how Spain will reduce its budget deficit from 8.5% to 3%, given an adjustment of 5.5 points is "very difficult".
Mike "Mish" Shedlock
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