Bank of Spain urges fiscal discipline despite slowdown

16 April 2008

MADRID – The governor of the Bank of Spain, Miguel Angel Fernandez Ordonez, on Tuesday urged the government to stick to fiscal orthodoxy by matching tax cuts with lower spending.

The government is planning to offer an across-the-board personal income tax rebate of EUR 400 as part of a series of measures to prop up a rapidly slowing economy.

Speaking at a seminar, the central bank chief said automatic stabilisers during slowdowns such as higher unemployment benefits should be allowed to kick in.

Spain has built up a series of budget surpluses over the past few years when the economy was growing by as much as 4 percent annually, and the government wants to draw down an initial EUR 10 billion from its coffers to boost activity.

Separately, Fernandez Ordonez said growing home loan defaults as a result of higher borrowing costs and increased unemployment had now become a source of "moderate" concern. Delinquencies still remain at low levels, he said, but are likely to increase, albeit not to the extent seen in other countries.

"Unlike what is happening in the United States, the failure on the part of households to meet mortgage repayment commitments tends to happen only under really extreme conditions," the governor said.

[El Pais / I. D. B. / Adrian Soto / Expatica]