* Country softens deficit targets as economy falls deeper
* EU, IMF give blessing to Spain's economic plan
* Government remains vague on structural reforms
By Julien Toyer and Robin Emmott
MADRID/BRUSSELS, April 26 Spain acknowledged
that its economy would shrink more than initially expected in
2013 and its budget deficit would be higher than promised, but
the European Union gave it more time to bring the shortfall back
down to bloc limits.
Prime Minister Mariano Rajoy, who was a keen advocate of
austerity in his first year in power, has tried since February
to find a middle way in the argument over Europe's economic
future between pro-austerity and pro-growth camps.
Officials began on Friday to sketch out a reform plan aimed
at returning Spain to growth but details remained thin, with the
government saying there was no need to pass major new structural
measures, tax hikes and spending cuts to meet the new targets.
The economy is set to contract 1.3 percent this year from a
0.5 percent recession initially expected, the government said.
It would return to growth in 2014.
The public deficit would now reach 6.3 percent of economic
output from an earlier 4.5 percent estimate. This means that,
with a deficit at 7.1 percent of GDP in 2012, excluding the
funds injected into the country's banks, the government will
have to find less than 10 billion euros to plug the gap in 2013.
It is also likely to be allowed to take two extra years,
until 2016, to bring it below the European ceiling of 3 percent
of gross domestic product.
The European Commission signalled that taking more time to
reduce the budget shortfall would make sense for Madrid although
no formal decision will be made until May 29 and EU finance
ministers will have to sign off on it.
The International Monetary Fund also welcomed Spain's
decision to ease up on its austerity drive, saying it should aid
employment while still helping to return the nation to fiscal
Europeans officials had told Reuters earlier this week that
the implementation of the reforms, not the size of the program,
would be key to obtain EU blessing for the new strategy as a
debate about Europe's austerity drive heats up, with Spain
widely seen as a taste case for Europe's economic policy.
"What we've done in 2012 put us in a situation of not asking
new big efforts to Spanish people," Spain's deputy Prime
Minister Soraya Saenz de Santamaria said at joint press
conference with Economy Minister Luis de Guindos and Treasury
Minister Cristobal Montoro.
Saenz de Santamaria insisted the new forecasts were
conservative and could benefit from a further fall in the
country's borrowing costs as well as a gradual recovery of the
euro zone economy.
Waves of liquidity from around the globe have largely offset
the dire state of the Spanish economy, brought down debt costs
and all but banished last year's fears that a budget crisis
would force Madrid to seek a international sovereign bailout.
LEAN TOWARD GROWTH
Rajoy said Spain would always be disciplined on spending but
he also recently indicated he would also now lean more to
The new plans stick to this strategy.
While the government had to backtrack from its pledge to cut
taxes as soon as next year, it said on Friday it was still
aiming at cutting income tax in 2015.
It also said consumer taxes would remain unchanged but would
review the energy and corporate taxes.
Other measures announced include a new reform of the public
pension system, cutting the link between inflation and public
sector wages, immediate steps to curb a growing energy tariff
deficit and measures to boost small business growth.
The government also committed to review its 2012' flagship
labour reform, for which it will likely seek the help of an
international body such as the International Labour Organisation
or the Organisation for Economic Co-operation and Development, a
Spanish government official said.
The European Commission had said this was a condition Spain
had to meet if it wanted to be given more leeway on the deficit
goals and start creating jobs in a country where more than 6
million people are unemployed and social tensions are rising.
On Thursday around 1,000 anti-system protesters gathered at
Spain's parliament calling for the government to step down and
hurling objects, flares and firecrackers at heavily armed police
who easily numbered more than demonstrators.
The protest was flagged as a "siege on congress" and several
demonstrator groups stayed away because of feared violence amid
heavy police presence.
Unemployment, which on Thursday rose to 27.2 percent would
remain at a high level over the next two years at 27.1 percent
in 2013, 26.7 percent in 2014 and 25.8 percent in 2015, the