Spain starts talks on new deficit target with EU

Spain began talks with the European Union on Thursday to change the country’s public deficit target after the economic downturn blew a hole in Madrid’s finances.

Spanish Finance Minister Luis de Guindos entered talks with eurozone counterparts in Brussels vowing that Madrid will follow through on promises to slash spending.

“Spain will fulfill its commitments regarding budget cuts, taking into account the fact that circumstances have changed,” De Guindos told reporters.

But, he added, “given the changed circumstances, it is foreseen that a process of negotiations will begin now. And here Spain is absolutely loyal and transparent regarding (fiscal) consolidation.”

De Guindos came to Brussels to explain why the country’s 2011 public deficit estimate grew to 8.5 percent of gross domestic product from a previous forecast of 6.0 percent.

The revised figure placed in peril this year’s target, agreed with Brussels, of keeping the deficit to within 4.4 percent of GDP.

But the conservative finance minister recalled that the target, set by the socialist government that was voted out late last year, was calculated on the basis of a growth forecast of 2.3 percent this year.

The conservative cabinet is expected to approved on Friday a “spending ceiling,” a macro-economic plan and details of the 2012 budget, De Guindos said.

Spanish Prime Minister Mariano Rajoy was also in Brussels for a two-day EU summit that started after the meeting of eurozone finance ministers.

But EU sources said Rajoy would not be going home with a new deficit target.

“We are still at a preliminary stage. The European Commission will examine the situation and we will come back to this issue at another meeting,” said an EU source.

European Commission president Jose Manuel Barroso held firm but said Brussels was waiting for Rajoy to present his budget, expected by the end of March, before giving an opinion.

“Mr Rajoy must present it by the end of March and this budget will have to conform fully with the rules of the Stability and Growth Pact,” Barroso said, referring to the EU’s fiscal rules.