Montoro Says Spain Missing Budget Goals Would Hurt Europe
Budget Minister Cristobal Montoro said Spain would damage European and global growth if it misses budget-deficit targets and threatened to take over the accounts of regions that don’t reorder their finances.
“Spain’s future and Europe’s future are at stake because we are big enough to hurt the whole of Europe and to threaten the global economic recovery,” Montoro told lawmakers in Madrid today during a debate on the 2012 budget. The government will take all measures needed because “for all parts of the administration the deficit target is unconditional,” he said.
Prime Minister Mariano Rajoy’s four-month-old government is battling to convince investors it can meet its fiscal goals for this year amid a recession and an unemployment rate of more than 23 percent. Data yesterday showed the central-government budget deficit narrowed to 0.83 percent of gross domestic product from 0.93 percent a year earlier.
The yield on Spain’s benchmark 10-year bond fell 4 basis points today to 5.82 percent as of 1:31 p.m. in Madrid, after starting the week above 6 percent.
Spain’s borrowing costs have surged by about 1 percentage point since the start of March, approaching the 7 percent level that helped force Greece, Ireland and Portugal into bailouts.
The People’s Party government is implementing the deepest budget cuts in over three decades after the nation’s deficit came in at 8.5 percent of GDP last year, 2.5 percentage points more than the target set by the European Union. Rajoy aims to narrow the gap to 5.3 percent this year.
Montoro said he will be “inflexible in asking each region, each townhall to correct its public finances and meet its deficit target,” He said the government’s efforts to reduce the budget gap are aimed at improving citizens’ well-being and that there is no European law being imposed by the bloc’s strongest members on the weakest.
“There are no strong and weak members in Europe,” Montoro said. “There are only the competitive ones and those that aren’t capable of adapting to modern times and to the economic relations Europe needs.”
Deputy Budget Minister Marta Fernandez Curras said yesterday that the central-government budget is “reasonably” on track to meet its full-year target of a deficit of 3.5 percent of GDP.
The central government budget gap was 1.85 percent in the first quarter including the impact of transfers to regions that were paid early this year. That compares with 1.06 percent a year earlier.
New tax increases aren’t yet reflected in the data while the government returned funds to taxpayers earlier this year, skewing the comparison, Curras said. First-quarter data for the region’s isn’t available yet. They had a combined shortfall last year of more than twice their target.
“We have no reason to doubt the absolute commitment of the Spanish government to undertake the necessary reforms,” European Central Bank President Mario Draghi told a European Parliament committee in Brussels today. “Remarkable progress has been achieved and is being achieved.”
ECB Executive Board member Jose Manuel Gonzalez-Paramo, a Spaniard, said yesterday the tools to rein in regions in the government’s budget-stability law will ease investors’ concerns.
“Among the measures adopted, some involve an issue that worries analysts, and that is regional finances, which are a black box that always yields bad surprises when you open it,” he said at a conference in Madrid.
Gonzalez-Paramo said he is “absolutely convinced” Spain will meet its deficit targets. Economists forecast the gap at 5.7 percent of GDP this year, according to the median of nine predictions compiled by Bloomberg News.
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