Spain defies Brussels on deficit target

Fri Mar 2, 2012 8:37am EST
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By Robert Hetz and Julien Toyer

MADRID/BRUSSELS (Reuters) - Spain defied the European Union on Friday, setting a 2012 deficit target at 5.8 percent of gross domestic product, a far softer goal than the 4.4 percent agreed with Brussels.

Prime Minister Mariano Rajoy said Spain was working within EU guidelines because it would still cut its public deficit to 3 percent of GDP by 2013. He said the new 2012 target was still a tough one.

"I'm backing austerity and aim to reduce the deficit from 8.5 percent to 5.8 percent; that's significant austerity," he said at the end of an EU summit in Brussels.

The announcement cast a pall over an agreement for tougher debt rules in the bloc. All but two of the EU's 27 leaders signed up to a 'fiscal compact' on Friday that commits euro zone countries to balancing their budgets over the medium-term.

That could strengthen the view that now is not the time to ease the rules for Spain despite its lobbying for leeway.

Rajoy said the move would not spook markets, but European stocks dipped and German Bund futures hit a session high after he spoke.

Spain's government will announce later on Friday its spending plan for Spain's public administrations in 2012, including for the 17 autonomous regions. The plan will add to cuts worth around 15 billion euros ($20 billion) announced in December.

Spain is emerging as a test case of whether Europe is willing to ease fiscal rules that heap more cuts on member states grappling with stunted growth, high unemployment and the threat of growing social unrest.   Continued...

Spain's Prime Minister Mariano Rajoy holds a news conference at the end of a European Union leaders summit in Brussels March 2, 2012.  REUTERS/Yves Herman