Spain in EU Crosshairs Over Austerity Delay

New government likely to be punished for manipulating data

The European Union has a new target for its ire: Spain. Even as it has lost patience with Greece over what it sees as inadequate and halfhearted attempts to implement austerity, it has a bone to pick with the new Spanish government, which it will likely sanction over a number of issues.

Reuters reported that the EU believes Spanish officials overstated 2011 deficit figures so that data for 2012 would look better in comparison. It also is concerned that Spain has failed to implement austerity measures quickly enough, which, according to three unidentified senior EU officials, would affect the country's growth over the longer term. As a result, as early as May the new government may feel the sting of the EU's anger.

One of the officials was quoted saying, in response to a question about whether Olli Rehn, European commissioner for economic and monetary affairs, would recommend sanctions, "It is very likely. It is not that we want to. But if there is a deviation, and it is almost inevitable, then we will have to."

Of the 27 EU countries, 23 are currently under an excessive deficit procedure, which comes as a result of failing to adhere to the EU debt limit of 3% of GDP. If sanctions are imposed against Madrid, that could result in Spain being charged fines of up to 0.1% of economic output for failing to reduce its deficit.

Mariano Rajoy, Spain's new prime minister, had hoped instead to win leniency for the country as a reward for putting strenuous fiscal reforms in place. Should the sanctions be imposed, that would be a blow to his administration. Rajoy blamed the previous government in December for what he said were slippages in public finances in the different regions of Spain that were larger than expected. He said the deficit would reach 8% or even higher as a result, when the European Commission had estimated the deficit at 6.6%.

Officials were also critical of Rajoy's decision to delay announcing the 2012 budget until March, calling it risky. While Rajoy and his economy minister, Luis de Guindos, have attributed the delay to a need for the EC forecasts before putting the budget together, sources in Madrid and in Brussels have instead credited it to a desire to delay new austerity measures till after elections are held in Andalusia toward the end of March. 

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