Spain dumps EU deficit goal

Spanish Prime Minister Mariano Rajoy said Friday that Spain would set itself a deficit target of 5.8 percent of gross domestic product (GDP) this year.

The goal was lower than the 4.4 percent agreed with the European Commission, he said, adding that his country was nonetheless "working within EU guidelines," because it was still aiming to "cut its public deficit to 3 percent by 2013."

Madrid considers it impossible to reach 4.4 percent this year, given that the 2011 deficit stood at 8.5 percent. Even the new deficit ceiling was described by Rajoy as a "tough one," requiring "significant austerity."

Rajoy is planning to add budget cuts worth 30 billion euros ($39.6 billion) to austerity measures worth 15 billion euros already announced in December.

He admitted that the decision to relax the deficit target was made without consulting EU leaders or the EU commission in Brussels.

"I don't have to. It's a sovereign decision. I'll tell the commission in April," he said.

Austerity vs. growth

The European Commission has voiced concern over any softening in national deficit targets, fearing that financial markets could lose faith in eurozone debt crisis management.

European commissioner for Economic and Monetary Affairs, Olli Rehn, has insisted that Spain explains why it overshot its deficit for 2011 by such a wide margin.

However, the Spanish government said Friday it expected the economy to shrink by a worse-than-forecast 1.7 percent this year, and the unemployment – already the highest in the industrialized world – to surge to 24.3 percent.

Meanwhile, US rating agency Fitch backed Spain's push for a more lenient deficit target, saying Friday that it would not downgrade the country's credit rating in the wake of a "more realistic" deficit objective.

uhe/ng (dpa, Reuters, AFP)