Zapatero rules out new moves to cut Spain deficit

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Spanish Prime Minister Jose Luis Rodriguez Zapatero on Wednesday ruled out new budget cuts to help reduce his country's public deficit, after winning China's renewed support for buying Spanish debt.

Spanish and Chinese firms signed deals worth about one billion euros ($1.4 billion) during Zapatero's lightning visit to Beijing, aimed at securing fresh investment to shore up Madrid's embattled economy.

"There are no new plans on the horizon to have to take any new (deficit reduction) measures. None," Zapatero said.

"The government hopes to push through new stimulus measures," the prime minister said, insisting that his administration would see through those reforms already undertaken and would not "lower its guard".

Zapatero's socialist government has slashed spending and passed pension reforms in its effort to reassure markets worried that Spain's public deficit is unsustainably high.

It has also reformed the labour market in an attempt to revive the economy and fight an unemployment rate of just over 20 percent, the highest in the industrialised world.

The country's central bank estimated late last month that Spain's public deficit will be equal to 6.2 percent of gross domestic product this year before falling to 5.2 percent on 2012.

The government itself predicts the deficit will hit 6.0 percent in 2011 and 4.4 percent next year, a sharp improvement but still well above the European Union's 3.0 percent ceiling.

"The Spanish economy is still in a difficult situation requiring the pursuit of ambitious and demanding policies to correct the fiscal imbalances, while pressing ahead with structural reforms conducive to growth and with the restructuring and recapitalisation of the banking system," the bank said.

Chinese Premier Wen Jiabao said Tuesday in a meeting with Zapatero that Beijing was ready to buy more Spanish government debt and invest in the restructuring of the savings banks -- crucial support for Madrid's efforts.

Zapatero, who headed from Beijing to Singapore on Wednesday, is seeking new investments to shore up Spain's economy as it tries to avoid a crisis in refinancing and raising new debt.

He said China, the world's second-largest economy, now holds about 12 percent of Spain's public debt -- a major increase from the four percent it held at the start of the global financial crisis.

"This increase (in investment) in Spanish debt was a major factor boosting stability, solvency and confidence in the eyes of the markets," Zapatero said.

"China should be the priority of our economic diplomacy, which is a more and more important element" of Spain's foreign policy, he noted, adding he wanted the country to have an export-driven economy with a focus on emerging markets.

The European Union and the International Monetary Fund bailed out Ireland and Greece last year and have now offered to help Portugal. Spain's economy is as large as that of Ireland, Greece and Portugal combined.

Concerns that eurozone debt troubles could spread to Spain pushed bond rates sharply higher last year, adding to the costs of servicing the country's sovereign debt.

But such fears appear to have eased since then as Madrid strengthened bank balance sheets, cut spending and pursued economic reforms.

Among the deals in Beijing, Spain's Gamesa Corporacion Tecnologica SA signed agreements with both China Resources Power Holdings Co. and China Datang Corp Renewable Power Co. to provide a total of 300 turbines.

Each company will get 150 turbines with a total capacity of 300 megawatts from Gamesa, one of the world's top wind turbine groups, which also signed a strategic cooperation pact with China Longyuan Power Group Ltd.

Zapatero was due back in China on Thursday to participate in the annual Boao Forum for Asia, which will bring together past and present world leaders, businessmen and academics on the southern island of Hainan.

© 2011 AFP

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