Favourite to be Spanish PM vows to cut 'everywhere'

17th November 2011, Comments 0 comments

The candidate who is the favourite to become Spain's next PM, Mariano Rajoy, said on Thursday that cuts will have to be made "everywhere", except to pensions, to meet the country's deficit target.

"I have already said that my first priority is to maintain the purchasing power of pensions. From that point, we must make cuts everywhere," the leader of the conservative Popular Party said in an interview published in left-leaning newspaper El Pais.

"We must eliminate several public institutions of regional governments. We must carry out less public works, give the priority to those that are already underway."

The Popular Party enjoys a wide lead over the ruling Socialists, in power since 2004, ahead of Sunday's general election and is tipped to win an absolute majority in parliament.

After letting its public accounts slide into a deficit equal to 11.1 percent of annual gross domestic product in 2009, Spain met its 2010 target and cut the deficit to 9.3 percent of GDP.

It is now targeting deficits of 6.0 percent of GDP in 2011 and 4.4 percent of GDP in 2012.

Ratings agency Standard & Poor's predicts the country will miss those goals. It forecasts a public deficit equal to 6.2 percent of GDP for this year and, more worrying, 5.0 percent in 2012.

"The stability plan presented to Brussels set the goal of a deficit of 4.4 percent (in 2012). My will is to meet this goal. Everyone must know that for my government, the priority will be keeping Spain's commitments to Brussels."

Markets are getting increasingly nervous about Spain's ability to get a handle on its debts.

The debt risk premium -- the extra rate charged on Spanish 10-year government bonds compared to safe-haven German bonds -- leapt Thursday to a euro-era record of 4.9714 percentage points.

Spain's treasury had to pay a record interest rate of 6.975 percent for a new debt issue when it raised 3.563 billion euros ($4.808 billion) with 10-year bonds on Thursday.

The interest rate paid was the highest since the creation of the euro single currency and it is also near the 7.0-percent threshold above which funding costs are deemed unsustainable.

Greece, Ireland and Portugal quickly sought international aid once their bond yields rose that far.

Rajoy said the forecast of economic growth of 2.3 percent next year would have to be revised after the government admitted Wednesday for the first time that it will miss its growth target for this year.

The government had predicted the economy would expand by 1.3 percent this year but Deputy Finance Minister Jose Manuel Campa said it would likely come in at around just 0.8 percent, in line with the forecast of most analysts.

"One of the first things we will have to do is the budget. Based on realistic figures," said Rajoy.

"We will have to make a growth forecast and then estimate income and expenses. But I insist, Spain needs to send a message that it takes the issue of the public deficit seriously."

© 2011 AFP

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