UPDATE 1-Spain sees EU flexibility on deficit goals

Tue Mar 5, 2013 10:04am EST

Related Topics

* Under current goals, Spain to cut deficit below 3 pct in 2014

* Like France, Spain wants more time to cut shortfall (Updates with quotes, details about Spanish, French deficit)

By Robin Emmott

BRUSSELS, March 5 (Reuters) - Spain joined France on Tuesday in pleading for more time to reduce its budget deficit, saying it believed the European Commission was warming to the idea to avoid deepening the country's recession.

Echoing France's position at a meeting of European finance ministers on Monday and Tuesday in Brussels, Spain's Economy Minister Luis de Guindos said there was no point in forcing Madrid into deeper cuts when the country was taking action and its credibility with markets was no longer in doubt.

Senior EU and German officials have said, similarly, in recent weeks that countries who are doing the right things should be given room for manoevre on deficit targets.

"I am convinced we can find a path, with an adequate level of flexibility, that Spain needs to leave its crisis behind," De Guindos told a news conference, referring to discussions with the European Commission about his country's fiscal policy.

Spain brought its deficit to below 7 percent of economic output last year from above 9 percent in 2011, which the country says shows its willingness to deal with the aftermath of a real estate collapse and the ensuing banking crisis.

The level was still above the goal set by the Commission, which polices EU countries' debts and deficits, however, and there appears to be little chance Spain can further cut the shortfall to within EU limits of below 3 percent in 2014.

That in theory leaves it exposed to legal action by the Commission which could eventually cost Spain money in fines or halted aid or threaten any future European bailout. There is little sign of appetite for such disciplinary moves in Brussels.

"Some will call it sensitivity, others will say it is about being intelligent, but we are talking about finding a balance given the economic climate," De Guindos said.

Spain's borrowing costs have fallen significantly since the European Central Bank said in September it was ready to buy euro zone debt to prevent a break-up of the 17 nation currency area.

But the Commission, eager to avoid any repeats of the bloc's debt crisis, wants to see countries come in line with EU-mandated deficit levels to show investors that the euro zone has its house in order. Economists warn of the risks to growth from government spending cuts and tax hikes in a year in which the euro zone's economy is expected to contract 0.3 percent.

French Finance Minister Pierre Moscovici said late on Monday that France, the euro zone's second largest economy, would only bring its budget shortfall down to below 3 percent in 2014, not 2013 as originally planned.

Also asking the Commission for a more balanced approach, Moscovici argued against too much austerity as the French economy struggles to avoid stagnating in 2013.

Both De Guindos and Moscovici met EU Economic and Monetary Affairs Commissioner Olli Rehn at the EU finance ministers' meeting in Brussels and De Guindos suggested he had received a sympathetic hearing.

"Commissioner Rehn... has made it clear that a potential flexibility of our path is possible," De Guindos said, although he declined to give more details.

The EU's statistics agency Eurostat will report final deficit numbers for 2012 in April and the Commission will decide in May whether to give France and Spain more time on its goals. (Reporting by Robin Emmott; editing by Rex Merrifield)

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