EU orders Spain to submit new budget as election nears
Valdis Dombrovskis - Photo EC
(BRUSSELS) - The European Commission on Monday ordered Spain to submit a new draft budget with lower deficit estimates to avoid violating the bloc's tough spending rules, in a blow for the government ahead of Spanish elections.
The official warning from Brussels comes ahead of Spain's December 20 general election, in which the economy is expected to be a key issue for the conservative government of Prime Minister Mariano Rajoy.
The Commission, the EU's executive arm, said that Spain's draft budget for 2016 was "at risk of non-compliance" with rules brought in following the global financial crisis, adding that it "invites the national authorities to present an updated draft budgetary plan."
It added: "The Commission expects Spain's headline budgetary deficit to decrease to 4.5 percent this year and to 3.5 percent of GDP in 2016, not meeting the target for Spain to correct the excessive deficit by 2016."
The EU limit for deficits is 3.0 percent of gross domestic product.
Valdis Dombrovskis, EU vice president for the euro, said that Spain had made a "remarkable" turnaround from the crisis but that Madrid "has to stay the course of reforms and responsible fiscal policy."
EU Economics Affairs Commissioner Pierre Moscovici had last week already chided Spain over its budget plans, warning Madrid that it would have to take additional measures to keep its deficit below 3.0 percent of output in 2016 as agreed.
Spanish Economy Minister Luis de Guindos struck back on Sunday, telling journalists that the government's forecasts "in recent years" have been more accurate than those made by Brussels and the International Monetary Fund.
"The Spanish economy has recovered with an intensity that we did not predict," he added at the IMF's annual meeting in Lima, Peru.
"I am convinced that Spain will meets its target of a deficit of 4.2 percent this year, and that this will mean that next year we will have a public deficit below 3.0 percent," he said.
- 'Unmatched adjustment' -
Blindsided by the debt crisis, Spain implemented unprecedented austerity measures to reduce its budget deficit which sparked noisy street protests and caused its support to slump.
From 10.6 percent in 2012, the deficit fell to 5.8 percent last year.
"The effort of structural adjustment made in Spain during the last four years is practically unmatched. This is much more important."
The Commission predicts the Spanish economy will grow by 3.1 percent in 2015 and by 2.7 percent next year -- less than the 3.3 and 3.0 percent forecast by the Spanish government.
De Guindos said the impact of the economic slowdown in Latin America on Spain would be "moderate, reduced" because two-thirds of Spanish exports head to other European Union member states.
Spain's ruling conservative Popular Party (PP) enjoys an absolute majority in parliament but a poll published Sunday shows it is running neck-and-neck with the main opposition Socialist Party.
The PP has 23.5 percent support, the Socialists 23.4 percent with new centre-right party Ciudadanos with 21.5 percent support, making it a potential king maker, the poll published in El Pais showed.
Far-left party Podemos, which wants to loosen the grip of austerity introduced by Rajoy's government after it came to power in 2011, came in fourth place with 14.1 percent.