December 22, 2012 / 2:25 PM / 5 years ago

UPDATE 2-EU to give Spain, France more time to cut deficit-press

MADRID, Dec 22 (Reuters) - The European Commission will propose giving Spain, France and several other euro zone states more time to cut their public deficits below the target limit of 3 percent of GDP, newspaper El Pais said on Saturday.

Citing senior sources at the Commission and in the Spanish government, the leading Spanish daily said France would likely get an extra year until 2014 rather than 2013 to rein in its fiscal gap.

Spain would likely be given until 2015 or 2016 rather than 2014.

A Commission spokeswoman declined to comment.

The commissioner in charge of Economic and Monetary Affairs, Olli Rehn, said last month he would assess Spain’s fiscal targets in February, adding that no additional austerity efforts would be required this year and next, while new structural reforms were needed for 2014 and beyond.

European and Spanish sources told Reuters in December that Spain’s fiscal path would likely be softened in order to mitigate the impact of the country’s second recession in three years, but that no decision had yet been made.

Such decisions need a formal discussion between the 27 European commissioners as well as a political green light from the euro zone’s 17 finance ministers.

A European official also said the Commission was working on a list of reforms it wanted Spain to undertake soon, such as new changes to state pensions and an overhaul of the tax system.

As revealed by Reuters on Dec. 12, Spain will soon present a law to restrict index-linking of pension payouts and to speed up the phasing-in of a higher retirement age.

Both are EU demands the country must meet in order to tap international aid to bring down its debt costs and fix its stricken economy.

Spain sought support from its European partners this year for its ailing banks, hit by a burst property bubble. Recession is also undermining government efforts to keep the public debt burden in check, and financial markets expect Madrid to seek sovereign aid sometime next year.

According to El Pais, the Commission has agreed for Spain on a new deficit path of 7 percent of economic output in 2012 and 6 percent in 2013. That compares to current targets of 6.3 percent for 2012 and 4.5 percent for 2013.

Senior Spanish officials told Reuters this month the Spanish deficit would likely come at around 7 percent of economic output at the end of the year.

Spain’s 17 highly-devolved autonomous communities are on track to meet - or to miss by a tiny margin - their deficit target of 1.5 percent of GDP, while the central government is on track to register a deficit of around 5.5 percent of GDP, including social security spending.

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