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Spain overshoots public deficit target again

31 March 2016, 17:12 CET
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(MADRID) - Spain overshot its public deficit target again in 2015, the budget ministry said Thursday, piling pressure on the next Spanish government to impose unpopular cost-cutting measures.

The deficit fell to 5.2 percent in 2015 from 5.8 percent in the previous year, Budget Minister Cristobal Montoro said, marking the eigth consecutive year Spain has overshot its fiscal target.

"It is therefore a new reduction of Spain's public deficit, but it is insufficient," he told a news conference.

Spain's conservative government predicted last year ahead of a December 20 general election that it would reduce its deficit to 4.2 percent in 2015 and then to 2.8 percent in 2016 -- just below a European Union limit of 3.0 percent.

But economists and Brussels were doubtful the targets could be met.

"Spain has never carried out such an effort at budget consolidation," economist Jesus Castillo of French investment bank Natixis told AFP.

European Union finance commissioner Pierre Moscovici, who had warned the forecasts were "a bit optimistic", said Thursday that the data "confirm the Comission's concerns about Spain's budget trajectory".

The Commission will make a full assessment of Spain's budgetary situation in May, he added.

Spain has been without a proper government since the election, which produced a hung parliament divided among four main parties, none of them with enough seats to govern alone.

Acting Prime Minister Mariano Rajoy lacks the power to push through fresh budget measures.

If no power-sharing agreement is found by May 2, fresh election will be held in June.

No matter what government eventually emerges, it will face difficult choices.

A drastic reduction in spending "is not desirable because there is a dynamic economic recovery but it remains fragile," said Castillo.

Spain's economy grew by 3.2 percent in 2015, one of the fastest rates in Europe, but growth is expected to slow to around 2.8 percent this year due to a worsening global outlook.

"This could lead to a recession," Francisco de la Torre, a lawmaker with centre-right party Ciudadanos and the former head of Spain's tax inspectors body, told AFP.

"It is time for Spain to get a new government and plan," he added.

- Regions blamed -

Montoro blamed the fiscal slippage on extraordinary measures like the need to fund an expensive new treatment for hepatitis C, a yawning social security deficit and overspending by regional governments.

Spain's 17 semi-autonomous communities, which enjoy a great deal of fiscal autonomy, posted a deficit of 1.66 percent of economic output, well above a target of 0.60 percent.

Only three regions met their targets, the minister said.

The northeastern region of Catalonia, governed by separatists, and the Mediterranean region of Valencia, governed by a left-wing coalition, were among the offenders, he added.

Montoro's Popular Party (PP) passed deep and unpopular budget cuts during its four-year term to try to meet deficit targets, generating noisy street protests.

But the government last year eased some of the austerity measures ahead of the December election.

It brought forward a income tax reduction plan and partially reinstated an annual Christmas bonus paid to public workers.

Rajoy in February predicted the deficit would come in at 4.5 percent in 2015.

Eurozone rules dictate that governments must narrow budget deficits to within 3.0 percent of economic output, or face fines although none have ever been applied despite consistent breaches.

Since the Stability and Growth Pact came about in 1998 to strengthen the monitoring of budgets, 25 of the EU's 28 members have overstepped the deficit limit. Sweden, Estonia and Luxembourg are the only countries that have never breached it.

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