Spain insists will meet deficit target, return to growth
Spain will "without a doubt" meet its deficit target for this year and it will post annual growth of 2.0-2.5 percent between 2011 and 2015, Prime Minister Jose Luis Rodriguez Zapatero said on Tuesday.
“We will without a doubt meet our commitment of reaching a deficit of 6.0 percent in 2011,” he told business leaders, adding Spain would “comfortably” meet its target of a public deficit of 9.3 percent for 2010.
“The commitment of the government of Spain is clear and unambiguous, we will correct any deviation with respect to the goals of fiscal consolidation as soon as it is detected,” he added.
The government has pushed through unpopular austerity measures, including higher sales taxes and cuts to public workers’ wages, to slash a public deficit that hit 11.1 percent of Gross Domestic Product in 2009, the third-highest in the eurozone after Greece and Ireland.
It has also announced plans to sell big stakes in the national lottery and the country’s main airport operator as it aims to bring the public deficit to below the 3.0-percent European Union limit by 2013.
At the same time, investors are demanding ever higher interest rates to buy Spanish debt because of concerns about the size of Spain’s annual deficits and the country’s heavy exposure to bond markets.
The big fear is that if rates go too high, Spain could be forced to seek an international rescue — a crisis with global implications that would dwarf the Irish and Greek bailouts, and possible similar action in Portugal.
Spain’s economy is twice that of Greece, Ireland and Portugal combined.
Deutsche Bank estimates that a bailout for Portugal would cost about 59 billion euros (76 billion dollars) but reach 318 billion euros in the case of Spain.
Investors are concerned that sluggish growth will make it difficult for Spain to achieve its budget targets and follow through on fiscal consolidation plans.
The Spanish economy, the European Union’s fifth largest, slumped into recession during the second half of 2008 due to the global financial crisis and the collapse of the once-booming property market.
It emerged with tepid growth of just 0.1 percent in the first quarter and 0.2 percent in the second but then stalled again with zero percent growth in the third.
Last month Zapatero said economy had returned to growth in the fourth quarter, without giving figures, and on Tuesday he predicted the pace would pick up as a result of the reforms his government is putting in place.
“The government is convinced that the efforts resulting from the wide array of reforms we are putting in place will contribute to bring our country’s growth to close to its potential average level of around 2.0 to 2.5 percent between 2011 and 2015,” he said.
Among the reforms passed are changes to the labour code which cuts the cost of firing workers and gives companies more flexibility to reduce working hours and staff levels in economic downturns in an effort to boost employment.
It also intends to reform the pensions system by raising the retirement age from 65 to 67.
In May 2010, the government cut its forecast for economic growth in 2011 to 1.3 percent from 1.8 percent due to its austerity measures, to 2.5 percent from 2.9 percent in 2012 and to 2.7 percent from 3.1 percent in 2013.
In contrast, the International Monetary Fund predicts growth of 0.6 percent this year, 1.7 percent in 2012, 1.9 percent in both 2013 and 2014 and then 1.8 percent in 2015.