Brussels: The European Commission hinted Monday that it could give Spain further leeway to meet budgetary deficit objectives given a deteriorating economy and troubled banking system.
“Spain has made commitments to its European partners on objectives in terms of budgetary consolidation” and “these are parameters that Spain must respect,” EU economy commissioner Olli Rehn’s spokesman told a news conference.
“That said, an economic analysis must be done by the Commission... which takes into account the economic environment within which the country is evolving,” he underlined.
The European Union Stability and Growth Pact, which sets limits for public deficits, contains a clause obliging such an assessment.
The spokesman, Amadeu Altafaj, said the Commission would have a clearer idea after the publication planned for 11 May of new growth and deficit projections for European countries.
Madrid has already been given leeway by euro zone partners to reduce its deficit this year to 5.3% of gross domestic product - as against the 4.4% of GDP initially decided, and the 8.5% logged last year.
But it has still to hit the target of 3.0% next year - the notional EU limit flouted by most since the financial crisis - and many economists already forecast Spain to fail as it struggles under deep recession, sky-high unemployment, and a rake of bad debt slewing around its banks.
The Spanish economy shrank by 0.3% in the first three months of 2012 after a similar contraction in the previous quarter.
The Spanish government said on Monday it will reluctantly swoop in with public money this week to clean up bad loans at its largest group of savings banks, Bankia.
The leading daily El Pais estimated Bankia would need €5-10 billion ($6.5-13 billion) to repair its balance sheet.
The Bank of Spain said doubtful loans in February amounted to €143.8 billion.