Ten days after new Prime Minister Mariano Rajoy unilaterally raised the Spanish deficit target for this year, European finance chiefs called on Spain to prune an additional 0.5 percent of gross domestic product out of the 2012 budget.

Rajoy’s goal of a deficit of 5.8 percent of GDP in 2012 “is dead,” Luxembourg Prime Minister Jean-Claude Juncker told reporters late yesterday after chairing a meeting of euro finance ministers in Brussels. Spain affirmed a target of reaching the euro area’s 3 percent limit in 2013.

That pledge is “far more important” Juncker said. “That is the main figure that should be kept in mind.”

European governments sought to show that tougher fiscal rules in effect since December have teeth, unlike the “stability pact” that let repeat violators of deficit limits go unpunished in the runup to the Greece-triggered debt crisis.

Pressure on Spain came as the ministers declared progress in fighting the two-year-old crisis, sealing a second, 130 billion-euro ($170 billion) aid program for Greece and pledging to boost the ceiling on overall rescue lending by the end of the month.

In office since December, Rajoy rattled Europe’s establishment after a March 2 leaders’ summit by shredding the original target of 4.4 percent of GDP in what he called a “sovereign decision” for Spain alone.

Bigger Shortfall

Spain’s pleas didn’t go entirely unheeded. The euro ministers agreed that the initial 2012 goal is no longer reachable after Rajoy inherited a higher-than-expected shortfall last year from his Socialist predecessor.

“I don’t agree that Spain should go through excessive and stupid consolidation that puts it in a more difficult situation than it already is, but on the other hand Spain is the fourth- largest economy of the euro zone and as such it cannot take total leave from the promises it has made,” Juncker said. “Today’s result is a healthy mix between consolidation and common sense.”

Spain’s deficit reached 8.5 percent of GDP last year, overshooting the 6 percent pledged by the outgoing government of Socialist Prime Minister Jose Luis Rodriguez Zapatero. Most of the slippage was due to bigger-than-forecast regional deficits.

‘Absolute’ Commitment

Spanish Economy Minister Luis de Guindos left the meeting without commenting on the unexpected fiscal announcement. On his way in earlier, De Guindos had said that “Spain’s commitment to budget rules is absolute.”

The new government has already implemented 15 billion euros of austerity measures, including higher income-tax rates. The government forecasts the economy will contract 1.7 percent this year with unemployment holding above 24 percent, complicating efforts to raise revenue.

“Spain needs to do more and was called upon to do more,” Dutch Finance Minister Jan Kees de Jager said. “We have to keep on top of it, the pact has to be maintained, they have to implement the reforms and the austerity measures.”

Deficit concerns have led Spanish bonds to underperform those of Italy in recent weeks. The yield on Spain’s benchmark 10-year bond rose 6 basis points yesterday to 5.058 percent, 14 basis points more than the comparable Italian bonds. A month ago the Italian 10-year yielded 30 basis points more than Spain.

European Union Economic and Monetary Commissioner Olli Rehn, in charge of policing the deficit rules, said Spain is now on a “convincing path of fiscal adjustment” in 2012.

To contact the reporters on this story: James G. Neuger in Brussels at jneuger@bloomberg.net; Jurjen Van de Pol in Brussels at jvandepol@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

http://www.bloomberg.com/news/2012-03-12/spain-faces-eu-call-for-deeper-deficit-cuts-in-first-test-of-stiffer-rules.html

• Aussie dollar’s rally runs out of steam after RBA statement   (2016-02-06 07:10:39)
• Iron Ore Heads for Record Losing Streak as Goldman Eyes Supply   (2014-05-30 09:36:17)
• Gold Trades Near 16-Week Low as Ukraine Assessed, Euro Weakens   (2014-05-29 09:43:48)
• WTI Crude Rebounds After Discount to Brent Narrows a Second Day   (2014-04-08 08:58:39)
• WTI Crude Rebounds After Discount to Brent Narrows a Second Day   (2014-04-08 08:58:39)
• Oil Imports Seen Falling to Zero as Soon as 2037 by U.S.   (2014-04-08 08:56:53)
• Wheat Crops See Worst Damage in 5 Years on Drought-Freeze   (2014-04-04 09:53:05)
• Grain Bulls Proved Right With Best Rally Since 2010: Commodities   (2014-03-31 10:51:50)
• Grain Bulls Proved Right With Best Rally Since 2010: Commodities   (2014-03-31 10:51:49)
• WTI Oil Falls From Three-Week High on U.S.-Russia Talks   (2014-03-31 10:51:20)