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Spanish report Spanish report
by Euro Reporter
2012-03-05 07:45:22
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Spain warns it will miss 2012 deficit target

Spain's prime minister said Friday that his recession-ridden country will miss its deficit goal for this year, risking sanctions from the European Union. The announcement came as the government reported more grim economic news: a big rise in claims for jobless benefits last month and a new forecast that Spanish economic output will fall 1.7 percent this year, worse than the 1 percent forecast recently by the EU and the 1.5 percent predicted just weeks ago the Bank of Spain. Unemployment _ now at 22.9 percent _ will hit an average 24.3 percent this year, the government said.

Spain's government deficit will reach 5.8 percent of economic output this year, Prime Minister Mariano Rajoy said after an EU summit in Brussels. That is much higher than the 4.4 percent Madrid had promised to the other states in the 27-nation bloc. However, Rajoy said Spain still aims to cuts its deficit to 3 percent in 2013, which would bring the country back in line with the bloc's fiscal rules. He didn't say how his EU counterparts reacted to the higher deficit, but insisted that he was committed to austerity. Rajoy's acknowledgment doesn't come as a surprise, as Spain sailed far past last year's deficit target. Instead of 6 percent of gross domestic product, the 2011 deficit reached 8.5 percent.

However, it puts Madrid on collision course with the EU and its partners in the euro currency union, which have focused on austerity as the best way of fighting off a crippling debt crisis. Rajoy spoke in Brussels after a summit of European leaders. On the new deficit goal, he said "I did not consult other European leaders and I will inform the Commission in April," he said. "This is a sovereign decision by Spain." In Madrid, Economy Minister Luis de Guindos announced the 1.7 percent GDP contraction forecast and said the economy will shrink in the first two quarters of this year and possibly in the third too, before starting to pick up. He blamed subdued domestic consumption, higher oil prices and a slower world economy. He said unemployment will rise over the short term as labour market reforms passed by the new government take time to kick in and encourage employers to hire.


Debt crisis was created by the ECB

The NYT had an article on how Spain is struggling to both reduce its deficits to address its debt crisis and try to simultaneously promote growth. It would have been worth pointing out that Spain's debt crisis is almost entirely a result of the European Central Bank's policy.

By explicitly refusing to act as a lender of last resort and imposing austerity conditions on Spain and other euro zone countries, the ECB has raised questions in financial markets about Spain's ability to pay its debt. Spain had been running budget surpluses before the crisis and its debt to GDP ratio remains below that of the UK, the United States and many other countries that have no difficulty borrowing in financial markets.


Spain’s jobless claims up by 112,000 in February to 4.7 million

Spain’s Labor Ministry says the number of people filing for unemployment benefits rose by 112,269 in January, raising the overall figure to a rounded 4.7 million. Spain’s jobless rate stands at a 22.9 percent, the highest in the 17-nation eurozone.

The economy posted negative growth in the fourth quarter of 2011 and is expected to enter recession this quarter. The new right-leaning Popular Party government has introduced a series of reforms in a desperate bid to shake up the economy but it acknowledges that unemployment is likely to continue rising throughout this year. The ministry said Friday the total number of people claiming benefits was up by more than 400,000 from February of last year.

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