Spain, Eurogroup aim for more realistic deficit cuts

LUXEMBOURG Tue Oct 9, 2012 4:05am EDT

LUXEMBOURG (Reuters) - Euro zone finance ministers believe that Spain's budget cuts should take into account its weak economy, Spain's economy minister said on Tuesday, adding Madrid would work to limit economic recession.

The International Monetary Fund forecast late on Monday that Spain will miss its deficit targets in 2012 and 2013 as the economic contraction next year will be much bigger than the Spanish government has forecast.

"There was a positive evaluation (by euro zone finance ministers of Spain's 2013 budget on Monday), of Spain's economic policy and the need to carry out a fiscal adjustment that is sensitive to the economic situation in the country," Luis de Guindos told reporters at a European Union finance ministers' meeting in Luxembourg.

The IMF said in its fiscal monitor report that the country's deficit would reach 7 percent of GDP in 2012 and 5.7 percent in 2013, compared with European Union-agreed targets of 6.3 percent of GDP this year and 4.5 percent of GDP next year.

"The only thing I can say (about the IMF's forecasts for Spain) is to try to avoid that they happen," de Guindos said.

"Logically, we are working on the basis that such negative forecasts are not met," he said.

The government has based its budget plan for next year on a recession of 0.5 percent while the IMF forecast a recession of 1.3 percent in the country in 2013 after a 1.5 percent contraction in 2012.

Asked if euro zone finance ministers pressed Spain for more budget deficit cuts on Monday night to make sure the targets agreed with the European Union are met, de Guindos said: "No, absolutely not."

The IMF also said that Spain's debt will jump to more than 90 percent of gross domestic product in 2013 as the country recapitalizes its banking sector, but de Guindos again played down the forecasts.

"More than the projection, which is important, is to see how we are closing the Spanish macroeconomic imbalances."

Asked if the Spanish government would ask for financial aid from the euro zone, de Guindos said:

"At this moment, the Spanish government will continue with reforms, continue with cutting the public deficit and after that dissipate all the doubts that exist about the future of the euro zone."

(Reporting by Robin Emmott, writing by Jan Strupczewski; editing by John O'Donnell)