Crisis: Eu, Spain won't meet deficit target of below 6.3%

Recapitalizing banks is a strain, report says

22 January, 14:09

Madrid's Stock Exchange Market Madrid's Stock Exchange Market

(ANSAmed) - BRUSSELS - Spain won't meet a 2012 deficit target of below 6.3%, according to a European Commission report published Tuesday.

''Consolidation continues, but the 2012 deficit target won't be met. The deficit has gone up due to banks recapitalizing to the tune of 10 billion euro - or 1% of GDP. Reaching a fixed 6.3% target will be very difficult'', the report said, going on to explain that Spain's autonomous regions are causing the most problems. ''There are substantial risks that many regions will go beyond their targets''. Not tweaking pensions in line with inflation, which was higher than predicted, ''has saved around 0.2% GDP, but the social system will bring a deficit of over 1.1%''.

Even if the effect of the consolidation measures will only be seen in the fourth quarter, including a VAT hike and the abolition of thirteenth month pay, a 6.3% target is still far off. Inflation is high because of the consolidation measures and a lack of competition in the product market, the report says. Recession is set to continue in 2013, with recovery only likely in the second half of the year.

Unemployment levels are still high and don't look set to decline. These factors have a knock-on effect for domestic demand. (ANSAmed).

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