March 28, 2024

Spain Touts Progress in Reducing Budget Deficit

In his annual state of the nation speech, Mr. Rajoy told Parliament that the budget deficit fell to less than 7 percent of gross domestic product last year. In 2011 the deficit was 9.4 percent of G.D.P., according to Eurostat, the European Union statistics office.

“A year ago, no outsider was betting on Spain, not one,” Mr. Rajoy said. “Today, nobody is betting that Spain will not manage to come out of this.”

Although the deficit shrank, Spain fell short of its goal of reducing the 2012 spending gap to 6.3 percent of G.D.P., as the government had promised its euro zone partners.

Spain’s financing problems have eased significantly since September, when the European Central Bank said it was ready to buy debt from Spain and other struggling euro economies in order to bring down interest rates. The promise alone was enough to accomplish that goal; the bond-buying program has yet to be activated.

The annual interest rate paid on Spain’s 10-year government bonds stood at 5.2 percent on Wednesday. Last summer, after Madrid was forced to negotiate a European bailout for its savings banks, the rate stood at 7.5 percent, a level considered unsustainable over the long term.

In a further sign of Spain’s eased market access, the Treasury offered investors dollar-denominated bonds Wednesday for the first time since September 2009. The sale of the five-year bonds is intended to raise about $2 billion, Reuters reported, citing an unidentified government official.

Madrid also hopes to sell as much as €4 billion in bonds at an auction on Thursday. If the sale is successful, the government will have sold a fifth of the debt it plans to issue for the full year.

Mr. Rajoy, however, is confronting his most serious political challenge since he took office in December 2011. He has been engulfed in a widening corruption scandal that has put the spotlight on his own finances and those of other leaders of his governing Popular Party.

Last month, the Swiss authorities disclosed that the party’s former treasurer, Luis Bárcenas, had amassed €22 million, or $29 million, in Swiss bank accounts. Mr. Bárcenas is now also under investigation over whether he made payments to Mr. Rajoy and other politicians through a secret party fund, an allegation that Mr. Bárcenas and other senior Popular Party members have denied. Earlier this month, Mr. Rajoy released his recent tax returns — a first for a Spanish prime minister — to rebut the graft allegations.

“I’m disgusted that there are cases of corruption in Spain, but I’m proud that the institutions pursue them,” Mr. Rajoy told Parliament on Wednesday.

Even though the number of graft cases has soared since 2008 and the bursting of Spain’s construction bubble, Mr. Rajoy added that “it is malicious to claim that there is a general state of corruption in Spain.”

Still, Mr. Rajoy told lawmakers he wanted to stiffen court sentences for people found guilty of corruption. The prime minister did not make reference to Mr. Bárcenas or anyone else under investigation, but this week Alfonso Alonso, the Popular Party’s parliamentary spokesman, said the party was “profoundly ashamed” that it had kept Mr. Bárcenas on its payroll through last year even though Mr. Bárcenas resigned as party treasurer in 2009 after he was indicted in an earlier stage of the corruption investigation.

And while the markets may be pleased by Spain’s recent fiscal performance, Mr. Rajoy continues to face mass street protests against the government’s spending cuts and other austerity measures, which many Spaniards blame for prolonging the recession and raising the unemployment rate to 26 percent. Another big protest is scheduled in central Madrid on Saturday.

Mr. Rajoy told lawmakers that his government would shift its focus from spending cuts to measures intended to promote economic growth. He pledged new tax breaks for entrepreneurs and easier financing for small and midsize companies through the state-owned Instituto de Crédito.

Article source: http://www.nytimes.com/2013/02/21/business/global/spain-touts-progress-in-reducing-budget-deficit.html?partner=rss&emc=rss

Speak Your Mind