EU to give Spain, France more time to cut deficit

Madrid, Dec 31: The European Commission will propose giving Spain, France and several other euro zone states more time to cut their public deficits below the target limit of 3 percent of GDP, newspaper El Pais said.

Citing senior Spanish and European Union sources, the Madrid-based daily said France could get an extra year, allowing it to narrow its fiscal gap by 2014, while Spain would be given one or two more years beyond that date.

France said that it would maintain its deficit-reduction goal for 2013 regardless of any softer line from Brussels. A Commission spokeswoman declined to comment on the report.

Spain's fiscal targets are to be reassessed in February, EU Economic and Monetary Affairs Commissioner Olli Rehn said last month. No additional austerity efforts are needed until 2014, he added, when more structural reforms are likely to be required.

France does not appear to need additional belt-tightening and may have room for a "softer adjustment", the commissioner also said in an interview with France's Le Monde newspaper.

But France said it planned to stick to its 3 percent goal for next year. "Our public finance path remains unchanged as it was fixed in the autumn," an aide to Prime Minister Jean-Marc Ayrault said.

The French government's 2013 budget is based on a 0.8 percent growth forecast for the year - more optimistic than the flat economic output predicted by Brussels and the International Monetary Fund.

European and Spanish sources had said earlier this month that Spain's fiscal path was likely be loosened to offset the country's second recession in three years.

Such decisions need a formal discussion between the 27 European commissioners as well as a political green light from euro zone finance ministers.

Spain sought support from its European partners this year for its ailing banks, hit by a burst property bubble.

Recession is also undermining government efforts to keep the public debt burden in check, and financial markets expect Madrid to seek sovereign aid sometime next year.

Madrid is to unveil new curbs on index-linked pension payouts and accelerate increases to the retirement age. Both EU demands must be met for Spain to tap international aid, lower its debt costs and fix its stricken economy.

According to El Pais, the Commission has agreed on a new Spanish deficit path of 7 percent of economic output in 2012 and 6 percent in 2013. That compares to current targets of 6.3 percent for 2012 and 4.5 percent for 2013.

Senior Spanish officials said this month the deficit would probably come in at around 7 percent at year end.

Spain's 17 highly devolved autonomous regions are broadly on course to meet their deficit target of 1.5 percent of GDP, while the central government is heading for a deficit close to 5.5 percent, including social security spending.

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SA/EN