Eurozone crisis: Spain disappointed by Eurogroup deficit demand
13 March 2012
“European Union demands a further five billion euro adjustment in Spanish budget”, announces El País. On 12 March, Eurogroup requested that the government in Madrid reduce its deficit to 5.3% of GDP in 2012 (a cut of €35 billion euros), whereas Prime Minister Mariano Rajoy intended to reduce it by 5.8% (a €30 billion cut). Notwithstanding a context where Madrid’s partners believe they have shown they can be flexible – the initial target established by the Commission was 4.4% – the Madrid daily nonetheless argues that this latest development amounts to an “unexpected setback” for Spain –
The European partners are insisting on the credibility of the policy of budget cuts to calm the interminable euro crisis. Europe has made it clear that there is nothing more important than austerity [...] and responded to the challenge of Rajoy. [...] Spain is the new frontier of fear in the EU: too big to fail, too big to be bailed out and too big for the markets to forgo a lynching for violation of 2012’s deficit targets. [...] The punishment is in line with the challenge: everyone was expecting a reprimand [while acknowledging the target of 5.8%], and the Commission has demonstrated that it will not make concessions.
For the bureaucrats in Brussels, it was particularly abominable that [Rajoy’s] announcement came on the day of the signing of the fiscal compact. [Rehn] has sought to reaffirm his authority in the prism of the new budgetary rules, and that is the argument that he presented to member states to convince them to demand a Solomon-like division of the deviation announced by Rajoy. The result is yet another makeshift solution made in Brussels [...] We were surprised by Eurogroup’s urgent insistence on a further 0.5% cut in Spain, at a time when the 2012 budget has not yet been drafted.