By Jan Strupczewski, Reuters
BRUSSELS –Recession in Spain this year and next means the country will have to approve big additional savings on top of those it has already made if it is to meet its own ambitious budget goals, forecasts from the European Commission showed on Friday. France, the Netherlands, Slovenia and Slovakia will also miss their 2013 deadline to cut deficits to 3 percent or less of gross domestic product unless they take action, according to the twice-yearly outlook for the 27-nation European Union.
Financial markets are particularly focused on Spain because of concerns that its public finances are unsustainable given the amount of government support that may be needed to bail out the banking sector, and its poor economic growth prospects. In a ratcheting up of pressure, the EU executive said Spain will have a budget deficit of 6.4 percent of GDP in 2012 and 6.3 percent in 2013, unless policies change, far from targets of 5.3 percent and 3 percent respectively. “Whereas the (5.3 percent) target of the central government should be within reach, deviations are projected at this stage for regional governments,” the Commission said. “Moreover, the social security system is projected to record a deficit again this year in line with a deteriorating labor market outlook,” the forecast said.
The 5.3 percent figure was itself an increase from earlier projections for Spain, agreed by Spain’s new government to give it some leeway. Missing the deadline set by EU finance ministers, unless the ministers believe it was justified, would entail financial sanctions for countries under new, sharpened EU budget rules.