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Spanish PM says deficit situation ‘difficult’

Prime Minister Mariano Rajoy warned on Wednesday that Spain faces a “difficult” situation as it battles to slash the public deficit after a spending blowout in 2011.

Even as students protested nationwide over crisis cuts, the conservative Popular Party leader warned of a tough task ahead for the country, which missed its deficit-cutting targets last year by a wide margin.

The scale of Spain’s deficit and the prospect of a recession this year have prompted speculation that Madrid will have to ask the European Union to relax the deficit targets for this year.

“We will lower the deficit as much as we can,” Rajoy told reporters on the eve of a two-day EU summit in Brussels where leaders are to sign a long-crafted treaty to rein in deficits and debt.

“The situation is difficult,” he said.

Spain reported Monday that the public deficit — the shortfall between state spending and revenue — amounted to 8.51 percent of economic output in 2011, way above the 6.0-percent target.

The result placed in deep peril this year’s target, agreed with Brussels, of keeping the deficit to within 4.4 percent of gross domestic product.

The European Commission warned on Tuesday that it will hold Spain to its targets.

Rajoy, who took power in December after ousting the ruling Socialists in November elections by promising to fix the economy, said the state spent 90 billion euros more than it received in revenue last year.

“The news on the deficit means we will have to make an effort,” the Spanish leader said. “This should be accompanied by economic stimulus policies, he added.

“This year will not be easy.”

Finance Minister Cristobal Montoro has refused to say whether Madrid will seek to negotiate a relaxed 2012 target with Brussels.

But he has said the “scenario is different” from the time when the goal was set and Spain was expecting modest growth in 2012.

The Spanish economy, the eurozone’s fourth largest, shrank by 0.3 percent in the fourth quarter of 2011 and the government has warned that the decline will likely be deeper during the first quarter of this year.

The Bank of Spain has forecast the economy will shrink 1.5 percent in 2012.

Rajoy’s government has announced spending cuts of 8.9 billion euros, frozen public sector wages and raised taxes on income, savings and property to bring in 6.3 billion euros.

It is determined to sustain confidence in Spain’s sovereign debt and avoid being sucked into a eurozone crisis that has already forced Greece, Ireland and Portugal to seek bailouts.

Spain’s 17 regional governments, which account for one-third of overall spending as they provide education and health services, were responsible for the biggest portion of the overrun last year.

Last month Spain banned its 17 regional governments from running budget deficits from 2020.

But the spending cuts are already prompting howls of protest.

Students’ and pupils’ associations called marches in about 40 cities and towns across the country Wednesday including Barcelona and Valencia to protest the austerity measures they say are disrupting classes and cutting thousands of teaching jobs.

The demonstrations were also billed as a gesture of solidarity with students in Valencia, the region worst hit by the education funding crisis, where police beat youths in bloody baton charges during demonstrations in recent weeks.