Spain in EU Crosshairs Over Austerity Delay

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.