Business | Economy

Spain not ready to obey EU or ECB dictate on budget gap

Prime Minister says Europe shouldn’t dictate how Spain cuts budget gap

  • Bloomberg
  • Published: 17:51 September 11, 2012
  • Gulf News

Spanish PM Mariano Rajoy at the press conference
  • Image Credit: AFP/Pierre-Philippe Marcou
  • Spain's Prime Minister Mariano Rajoy gives a press conference after his meeting with Finnish Prime Minister Jyrki Katainen at the Moncloa palace in Madrid on September 11, 2012. Finnish Prime Minister Jyrki Katainen backed Spain in its "unfair" financial crisis and said he would not pressure it to seek a full sovereign bailout.

Madrid : Prime Minister Mariano Rajoy said he won’t allow the European Union or the European Central Bank to stipulate how Spain narrows its budget deficit as a condition for buying the country’s bonds.

Rajoy pledged that Spain will meet its targets for reducing its budget shortfall this year and next and defended his government’s right to set spending limits on individual policies, in his first television interview since taking office in December.

“We need to meet the budget deficit commitment, which is the most important challenge we have as a country,” Rajoy said late Mondayday. “I won’t accept them telling us which are the specific policies where we have to cut or not.”

Rajoy said he still aims to protect Spanish pensioners from suffering cuts in their benefits and may be able to repair some of the election pledges he’s broken before he has to face voters again in 2015. He said his government still needs time to study the ECB’s plan to buy bonds of struggling euro area members before deciding whether to request aid since the pledge of support has already lowered Spain’s borrowing costs.

“We know if we request it, they can give us the loan,” he said. “We need to see if it’s really necessary.”

Spain is battling to regain the confidence of investors and its European partners after overshooting its budget deficit target last year by 50 per cent.


Affected confidence


“That did a lot of damage to Spain and affected confidence in our country a lot,” Rajoy said on Monday.

German Finance Minister Wolfgang Schaeuble told lawmakers in Berlin on Monday that Spain doesn’t need a full sovereign bailout, according to two party officials who participated in the briefing. Schaeuble praised Rajoy’s work on reforming the economy, saying the progress he’s made means that a full bailout isn’t necessary, said the officials who asked not to be named because the briefing was private.

Spanish bonds rallied last week after ECB President Mario Draghi said the central bank will buy unlimited quantities of sovereign bonds as long as governments in countries such as Spain and Italy request aid from Europe’s rescue funds and sign up to strict conditions. The yield on Spanish 10-year bonds rose 7 basis points to 5.70 per cent on Monday.


Breaking promises


Rajoy said that breaking a string of promises he made to Spaniards on taxes and benefits when they chose him to lead the country in November didn’t undermine the legitimacy of his government and said he may be able to reverse policies such as raising sales tax and cutting unemployment benefits before the next vote.

“These are measures that can be recovered over the length of the legislature,” he said. “They gave us a mandate to recover economic growth for Spain.”

The Spanish economy may contract less than the 1.7 per cent forecast by the government this year, he added.

The premier criticised politicians in Catalonia, including regional president Artur Mas who are capitalising on the weakness of the Spanish state to press their case for independence. Mas endorsed a demonstration in favour of independence planned for the regional capital Barcelona on Tuesday.

“This is the last thing we need right now,” Rajoy said. “Can we get our priorities straight, please.”

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