EU sent inspectors to examine Spain deficit figures

BRUSSELS/MADRID Fri Mar 9, 2012 9:57am EST

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BRUSSELS/MADRID (Reuters) - Inspectors from the European Commission have been in Spain to evaluate its 2011 budget deficit after the numbers came in much higher than expected, the EU executive said on Friday.

Spain said at the end of February that its budget deficit was 8.5 percent last year, far above the Commission's expectation of 6.0 percent.

Madrid also said it would not meet its target for this year of 4.4 percent, saying the deficit would be 5.8 percent.

"Technicians of the European Commission have been in Madrid this week to collect information on the (2011) public accounts," said Amadeu Altafaj, the Commission's spokesman on economic and monetary affairs.

"It is a normal practice in all countries under an excessive deficit procedure," he added.

Officials in Brussels have privately queried whether the new government may have overestimated this year's budget gap for political purposes, and Monetary Affairs Commissioner Olli Rehn has asked the government for more details.

Spain's Deputy Prime Minister, Soraya Saenz de Santamaria, said the government had provided all the information requested by the Commission on the execution of the 2011 budget.

"We gave them as much information as we could, with the maximum transparency... Not only did we give the data they asked for but also the mechanisms we're putting in place so that these circumstances don't happen again," she told a press conference.

The EU's recently sharpened excessive deficit procedure starts when a country has a deficit higher than 3 percent of gross domestic product. It envisages fines for euro zone countries like Spain - unless the shortfall is reduced in line with recommendations from euro zone finance ministers.

The recommendation was for a reduction to 4.4 percent this year, but Spain's economic growth forecasts when the recommendation was made were much more optimistic than now.

Spain's defiance over the pace of reduction of the deficit will therefore be the first test of how the new EU budget rules will be applied.

Faced with a similar possibility of overshooting deficit targets, another euro zone country, Belgium, cut spending to make sure of meeting the goals.

The Spanish deficit number has yet to be confirmed by the European Union's statistics office Eurostat in an official publication in April, before the Commission can make any decisions on whether Spain should be allowed more flexibility.

Eurostat has been given increased auditing powers in 2010 after Greece cheated on its deficit figures for several years and the body can now check the data at central, regional, local and social security levels.

Commission President Jose Manuel Barroso has said he believed Spain would present a 2012 budget fully in line with EU budget rules.

Officials in Brussels insist Spain must present a budget based on the 4.4 percent target and that there will be no room for discussions on relaxing it until May.

If the target could not be reached because of worse than expected growth, the Commission could accept the worse outcome, but the effort to meet it would first need to be made, one euro zone official has said.

(Writing by Luke Baker and Julien Toyer; Editing by Rex Merrifield and Patrick Graham)

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