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March 13, 2012 at 11:35 AM
Spain is in for a difficult time. Already mired in debt and unemployment, the country has been told that the target deficit rate of 5.8% of GDP that new Prime Minister Mariano Rajoy declared only 10 days ago is inadequate, and Madrid must seek a faster reduction in its deficit.
Bloomberg reported Tuesday that while Spanish Economy Minister Luis de Guindos said the country would accept the eurozone’s “recommendation” that it cut an additional 0.5% from its budget, he added that Spain was “absolutely committed” to lowering its deficit to meet the eurozone requirement of 3% by 2013.
Nonetheless, the news was a surprise, since the eurozone had not planned on having to deal with Spain until after its 2012 budget is released in April and until final European Union data is available on the 2011 shortfall. Rajoy had, after a March 2 summit meeting, initiated the new target deficit rate without consulting the eurozone, which had set a rate of 4.4% for Spain to meet.
However, Spain had substantially overshot the 6% deficit rate that had been promised by Rajoy’s predecessor Jose Luis Rodriguez Zapatero for 2011, instead coming in at 8.5%. This, coupled with an unemployment rate topping 24% and a prediction that the country’s economy would contract 1.7% in 2012 on top of austerity measures already in place, led Rajoy to declare the goal for 2012 a “sovereign decision” to be made by Spain alone. He discarded the 4.4% target in favor of the new 5.8% goal.
