Spain risks sanctions as it misses deficit targets

[March 02, 2012]  BRUSSELS (AP) -- Spain's Prime Minister said Friday that his recession-ridden country will miss its deficit goal for this year, risking sanctions from the European Union.

Spain's government deficit will reach 5.8 percent of its economic output this year, Prime Minister Mariano Rajoy said after an EU summit in Brussels. That is much higher than the 4.4 percent Madrid had promised the other states in the 27-nation bloc.

However, Rajoy said Spain still aims to cut its deficit to 3 percent in 2013 -- a move that would bring the country back in line with the bloc's fiscal rules. He didn't say how his EU counterparts reacted to the news of the higher deficit, but insisted that he was committed to austerity.

Rajoy's acknowledgment doesn't come as a surprise, as Spain sailed far past last year's deficit target. Instead of 6 percent of gross domestic product, the 2011 deficit reached 8.5 percent.

However, it puts Madrid on collision course with both the EU and its partners in the euro currency union, which have focused on austerity as the best way of fighting off a crippling debt crisis.

A spokesman for the European Commission said Friday that the EU's executive had not softened this year's goal.

"The excessive deficit procedure foresees a target of 4.4 percent in 2012," said Amadeu Altafaj Tardio. "Therefore our assessment is based on that target."

He also warned that Madrid, which currently has unemployment higher than 20 percent and a shaky banking sector, could come under renewed market pressure if it fails to rein in its deficit.

"There is an issue of confidence at stake here," Altafaj Tardio said. He added that the Commission still wants Madrid to provide details on why last year's deficit was so much higher than expected -- and what it plans to do about it this year -- before the end of the month.

The Commission's reluctance to give Spain more leeway means the country risks being slapped with financial penalties of up to 0.2 percent of GDP.

[Associated Press]

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