Spain’s deficit misses GDP target as its economy shrinks rapidly

Finance ministers from the 17 countries that use the euro will discuss a potential rescue for Spain

9 July 2012

Spain’s deficit will only fall to 6.3% of GDP this year as the eurozone’s fourth-largest economy shrinks faster than previously expected, the European Commission said today.

The commission had set Spain a target of reducing its deficit to 5.3% by the end of 2012, but it will instead propose tomorrow to the meeting of EU finance ministers that the target be relaxed. The commission has also shifted its deficit target for Madrid for 2013 to 4.5% and 2014 to 2.8%.

Prime minister Mariano Rajoy is poised to unveil a third wave of austerity measures to avoid a full-scale bailout, but recession and unemployment has shrivelled the tax take. He is weighing up a tax grab on products like food, gas and water, which carry a reduced rate of VAT.

Madrid’s 10-year borrowing costs shot back into the 7% danger zone in trading this morning.

MORE ABOUT

Economics

Spain

Tax