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Brussels eases Spain’s deficit target for this year to 6.5 percent of GDP

In return, European Commission demands timely implementation of structural reforms

Portugal given until 2015 to meet the EU's three-percent ceiling

European Economic Commissioner Olli Rehn speaks during a media conference at EU headquarters in Brussels on Wednesday. Ampliar foto
European Economic Commissioner Olli Rehn speaks during a media conference at EU headquarters in Brussels on Wednesday. AP

The European Commission on Wednesday confirmed that Spain will be given more time to reach its deficit-reduction targets as a result of the weak state of the economy.

The goal for this year was set at 6.5 percent of GDP, compared with the figure of 6.3 percent requested by the conservative government of Prime Minister Mariano Rajoy. The initial target was 4.5 percent of GDP, down from 7.0 percent in 2012, excluding the 40-billion-euro European bailout to recapitalize Spanish banks.

Spain was also given another two years to bring the budget deficit back within the European Union ceiling of three percent of GDP. The administration now has until 2016 to do so, when the shortfall is expected to be 2.8 percent of GDP. This will be achieved progressively with the goal for 2014 set at 5.8 percent of GDP and at 4.2 percent in 2015.

The concessions reflect the deterioration in economic activity and the fact the government had complied with the structural adjustments demanded of it for last year.

As expected, Brussels declined to initiate sanction proceedings against Spain for failing to fulfill its fiscal commitments. However, European Economic Commissioner Olli Rehn demanded the rigorous and timely implementation of the reforms the government has pledged to carry out. These include a national employment plan within two months, the setting up of an independent body to oversee that budget stability is adhered to, and mechanisms to ensure the sustainability of the state pension system under which benefits are revised according to factors such as life expectancy and not inflation.

Brussels also wants the Rajoy administration to decouple public spending from rises in inflation and for the government to present an overhaul of the tax system by March of next year.

Portuguese shortfall

The Commission gave Portugal until 2015 to meet the EU 3 percent ceiling. The shortfall has to be reduced from 6.4 percent last year to 5.5 percent this year, to 4.0 percent in 2014 and to 2.4 percent in 2015.

In order to do so, Brussels said the government needs to implement fiscal measures amounting to 3.5 percent of GDP this year that include cutting its payroll bill, increasing the efficiency of the public administrations and making better use of EU funding. It also recommended consolidation measures equivalent to two percent of GDP for 2014 by improving the sustainability of the state pension system and through further modernization of the public administrations.