Spanish PM defends EU fiscal pact, austerity policy

Spain supports the EU’s fiscal pact on cutting budget deficits and will continue to pursue its austerity policies at home, Spanish Prime Minister Mariano Rajoy said Wednesday.

“Spain, which has signed the EU fiscal compact, holds that this treaty must remain in place in the future,” the conservative leader said as popular pressure grows on eurozone leaders to focus more on growth than on austerity.

Rajoy said “deficit reduction measures are a good policy.”

The election of Francois Hollande as French president at the weekend on a promise to add growth measures to the EU fiscal pact signed in March has reopened the growth versus austerity debate in Europe.

In Greece Sunday, voters deserted mainstream parties which had endorsed harsh austerity measures in return for an EU-IMF bailout, opening up the possibility of a government coming to power which would renege on the whole deal.

German officials have insisted that Athens must stick to the EU-IMF arrangement, including the austerity measures, or risk its euro membership.

Spain is one of the eurozone countries that is most concerned by the debate, with Rajoy trying to slash the public deficit while the country’s economy is in recession and one in five are unemployed.

Rajoy has promised to lower Spain’s public deficit from 8.5 percent of gross domestic product last year to 5.3 percent this year and 3.0 percent — the EU ceiling — in 2013.

“The three grand pillars of the euro should now be first reducing deficits, secondly ensuring that debt is sustainable and thirdly undertaking reforms to unlock economic growth,” Rajoy said at a press conference with his Portuguese counterpart Pedro Passos Coelho.

“It is not possible to grow with an unsustainable debt on your back,” said Passos Coelho, whose country is implementing an austerity programme under an EU-IMF bailout worth 78 billion euros ($101 billion).

“Austerity policy is a first step towards recovery,” he added.