Brussels - Eurozone finance ministers gave their final approval to a
second bailout for Greece on Monday and turned their fire on Spain,
demanding it aim for a tougher deficit target this year in order to get
back on target in 2013.
Greece, the source of the currency bloc's
debt crisis, swapped its privately held bonds at the weekend for new,
longer maturity paper with less than half the nominal value, a move that
cut its debts by more than €100bn.
The exchange paved the way
for eurozone ministers to give the final political go-ahead to a €130bn
package that aims to finance Athens until 2014. The decision will be
formalised by junior officials on Wednesday.
"As agreed, new
official financing of €130bn will be committed by the euro area and the
IMF for the period 2012-2014," Jean-Claude Juncker, who chairs the
Eurogroup of eurozone finance ministers, told a news conference.
to a high take-up of the bond swap offer, Greece's debt would fall
below a target of 120% of gross domestic product (GDP) in 2020, reaching
117% from 160% now, he said.
As Greece's financial problems have
lost some urgency, Spain has raised a new challenge. After announcing
the previous government had missed its 2011 budget deficit target by a
significant margin, the new administration said it would not meet the
European Union-agreed deficit goal for this year either.
was supposed to cut its deficit to 4.4% of GDP this year, but said it
would only aim for 5.8% as it heads into recession. Its deficit in 2011
was 8.5%, far above a 6.0% goal.
In a statement, the Eurogroup
said Spain should strive for a 5.3% deficit target this year, cutting it
some slack from the initial goal but keeping the pressure on.
"The Spanish government expressed its readiness to consider this in the further budgetary process," it said.
eurozone is keen that Spain, a far bigger economy than Greece which has
so far avoided the need for a bailout, gives the financial markets no
whiff of backsliding after Athens has been taken off the critical list,
for now at least.
"It will be the responsibility of the Spanish
authorities to choose the initiatives that will have to be taken in
order to bring down the budgetary deficit in 2012, what is most
important is what is the target for 2013," Juncker said.
"What is less important, but nevertheless important, are the avenues chosen in 2012."Leeway?
pledged it would cut the deficit to 3% of GDP next year, in line with
the agreed final deadline, but wanted the higher starting point and
slower economic growth to be taken into account in determining the path
"Spain's position is that two things have changed. The
first: last year there was a deviation of 2.5% in the public deficit and
the second: that the circumstances in terms of economic growth have
changed significantly," Spanish Economy Minister Luis de Guindos said.
"Spain's commitment to the fiscal rules is absolute."
European Commission expects Spain's economy to contract 1% this year
after growth of 0.7% in 2011, a sharp downward revision from the last
forecast for 0.7% growth.
Several other eurozone countries have committed themselves to meeting budget targets.
said at the weekend it was sticking to its deficit goals and came up
with nearly €2bn of extra spending cuts to make the target - a move that
could add to pressure on Spain to stick to its agreed plan. Portugal
and the Netherlands are also fixed on meeting their targets.
stricter EU Stability and Growth Pact, which came into force in
December, envisages fines for eurozone countries like Spain which are
already running deficits above the 3% of GDP ceiling and missing their
deficit reduction targets.
Economists believe fierce deficit cutting could be self-defeating.
the country's still relatively favourable debt position, we think that a
crash fiscal retrenchment should not be the government's top priority,"
said Deutsche Bank economist Gilles Moec.
He said Spain was
successfully addressing its key problem which was its rigid labour
market, but that the lower wages that could result would likely depress
domestic demand further.
"We believe it may be unwise to 'front-load' the necessary fiscal adjustment in these circumstances," Moec said.
"Waiting for the recovery to take hold in 2013 may ultimately be more
beneficial to the underlying state of Spanish public finances."