EU focus on Spanish structural deficit in disciplinary action: Rehn

BRUSSELS Wed Nov 7, 2012 9:22am EST

BRUSSELS (Reuters) - The European Commission will focus on Spain's structural, rather than nominal, budget gap in assessing if Madrid has taken effective action to cut the shortfall under the European Union's disciplinary procedure, the EU's top economic official said.

"We are... working ...to assess whether effective action has been taken, in terms of structural effort of reducing the fiscal deficit. So we will not only focus on the nominal targets, but especially on the structural effort as defined in the EDP (excessive deficit procedure) decision of July for Spain," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

The Commission expects Spain to have a nominal budget deficit of 8.0 percent of GDP in 2012, 6.0 percent in 2013 and 6.4 percent in 2014.

But in structural terms, when one-off revenues and expenditures are excluded as well as the effects of the business cycle, the shortfall is to be much lower: 6.3 percent of GDP this year, 4.0 percent in 2013 and 5.3 percent in 2014.

In July, EU finance ministers asked Spain to reduce its structural deficit by 2.7 percentage points of GDP in 2012, another 2.5 percentage points in 2013 and 1.9 points in 2014.

Because Spain's structural deficit in 2011 was 7.5 percent, Madrid would miss the improvement target for 2012 since it would cut the structural gap only by 1.2 points rather than the 2.7 requested.

Similarly in 2013, the forecast structural deficit reduction by 2.3 percentage points would fall short of the target of 2.5 points set by EU ministers in July.

If EU ministers decide that Spain has not taken effective action to reduce its deficit in line with their recommendations, they could move to fine Madrid under the new, tougher EU budget rules.

Asked if a request from Spain for a precautionary credit line from the permanent euro zone bailout fund ESM would help restore confidence and therefore help Spanish economic growth, Rehn told a news conference:

"I do not want to complicate any negotiations or internal reflection in the Spanish government. I just say that for the moment there is no request by Spain."

"Meanwhile, we know the framework and conditionality of the European Stability Mechanism, for instance for a possible precautionary programme related to primary market purchases and we know the same for the European Central Bank's scheme for Outright Monetary Transactions, which would of course be based on an independent decision by the European Central Bank," he said.

"I can say that in case there is a request, we will be ready to act and carry out our responsibilities in terms of designing and monitoring a programme," Rehn said.

(Reporting By Jan Strupczewski and Rex Merrifield)