Spain set to win eurozone leeway on rising deficit

Spain looked set Monday to secure leeway to get its worsening public finances in order, as Greece moved towards wrapping up its second bailout in as many years.

Euro finance ministers meeting in Brussels appeared to soften their position on a rising Spanish deficit after the government indicated that it would miss its target for 2012 due to the recession.

Several ministers, however, insisted that Spain must bring its deficit within the EU limit of 3.0 percent of gross domestic product in 2013.

The eurozone meanwhile was expected to sign off on the remainder of a 130-billion-euro bailout for Greece this week after Athens completed a historic bond swap to erase more than 100 billion euros in privately-held debt.

“We start from the principle that Spain will and wants to achieve its 2013 budget target,” Eurogroup head and Luxembourg Prime Minister Jean-Claude Juncker said, while conceding that pre-agreed 2012 objectives will now be “discussed.”

Normally, the failure to meet existing Brussels deadlines for deficit and debt reduction would result in large-scale fine under new eurozone laws and European Union principles.

Hungary, for instance, is set to be docked substantial monies on Tuesday, despite Budapest figures showing it fell officially within the EU limits.

Spain’s deficit is roughly the size of Portugal’s bailout after overspending last year amounted to 90 billion euros ($120 billion). Spanish Prime Minister Mariano Rajoy says budget slippage this year will be almost as high.

The problems in Madrid were the subject of pre-Eurogroup talks between German Finance Minister Wolfgang Schaeuble and Spanish counterpart Luis De Guindos.

“There is no doubt about Spain’s commitment despite a complex, recessionary climate, not only in Spain but also in Europe,” De Guindos said after their meeting.

Schaeuble “assessed the reform efforts that Spain is undertaking positively. It was an open and pleasant meeting,” the Spanish minister said.

“Spain will make up for what it did not do last year regarding structural reforms,” mainly an opening of its labour market, he added.

Not everyone appeared happy with the stance.

Austria’s hardline Finance Minister Maria Fekter said currency partners should adopt a “severe” attitude towards Spain, the eurozone’s fourth-biggest economy, in order to at least appear “serious.”

Spain now tips its deficit to reach 5.8 percent of GDP this year, when it was meant to fall to 4.4 percent under a target previously agreed with the EU.

Diplomats have said Madrid blames its autonomous regional governments for overspending.

Markets seemed clear that Spain was a very different case from much smaller economies like Greece or other bailed-out states in Ireland and Portugal.

London-based analyst Gilles Moec of Deutsche Bank said in a note to investors that giving Spain time to reach 24-month goals was “reasonable.”

He said: “Given the country’s still relatively favourable debt position, we think that a crash fiscal retrenchment should not be the government’s top priority” at a time of rampant unemployment and recession.

On Greece, Schaeuble said the remainder of 130 billion euros in rescue loans promised by eurozone governments to Athens would be processed this week following clarification by the IMF on its contribution at Monday’s talks.

Some of the bailout was already needed as “sweeteners” for big debt-holders, to recapitalise Greek banks left on their knees by the write-down and also to guarantee the debt-swap in case it went badly wrong.

Greece previously had a total public debt of over 350 billion euros and faced a big bill on March 20 presented as a default deadline.

Euro ministers were also to look at a projected shortfall in government accounts from the Netherlands worth 10-17 billion euros.

Depending on the outcome of delicate negotiations on a new budget between the minority government and Dutch right-wing leader Geert Wilders, the Dutch are facing possible early elections.

Discussions were meanwhile due to begin on boosting the eurozone’s firewall, as well as replacing Juncker as Eurogroup chair, in among a slew of EU finance posts subject to cross-border bargaining.