Spain's Rajoy wants growth, without letting up on austerity

Wed Feb 20, 2013 10:22am EST
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By Emma Pinedo

MADRID (Reuters) - Prime Minister Mariano Rajoy pledged on Wednesday to pull Spain out of its painful recession without relaxing his drive to cut the country's high public deficit.

He struck a difficult balance that may please neither voters, who are fed up with austerity, not Spain's European partners, who did not get from him the new reform agenda they have been seeking.

In his first state-of-the-nation speech since taking office in December 2011, Rajoy said the deficit had dropped below 7 percent of gross domestic product last year, still above the European Union's short-term target.

He also announced new incentives for employers to hire young people - youth unemployment is 56 percent - and cut taxes for small- and medium-sized companies.

At the same time, he told parliament he would remain strict on deficit cutting while implementing tough reforms to the labor market, financial system and public finances.

But he fell short of meeting demands from the EU and European Central Bank to lay out an ambitious legislative plan of further structural reforms to the economy.

Rather than beginning his speech to parliament with a list of accomplishments, Rajoy went straight to the heart of the country's deep economic crisis, recognizing the human suffering caused by a 26 percent unemployment rate.

"The first objective of this government is to turn around this situation... The reality is terribly hard, no green shoots or passing clouds or early spring," Rajoy said.   Continued...

Spain's Prime Minister Mariano Rajoy gestures as he delivers his speech during the State of the Nation debate at Parliament in Madrid February 20, 2013. Rajoy on Wednesday said he would soon present a new series of fiscal reforms to boost job creation for young people and reduce the tax burden on small and medium-sized companies. REUTERS/Sergio Perez