Home News Fresh fears over Spain deficit, as finance tax clears hurdle

Fresh fears over Spain deficit, as finance tax clears hurdle

Published on 22/01/2013

Fresh worries surfaced Tuesday over Spain's public finances as the EU warned of missed deficit targets on the day 11 eurozone countries got the go-ahead to work on taxing financial transactions.

The leaders of Germany and France promised new moves to strengthen the eurozone, as the currency club that has laboured so hard to stabilise its debt-laden reputation on money markets settles down under a new Dutch chairmanship.

The eurozone is currently labouring under a record unemployment rate of almost 12 percent, but even Greece is doing its bit, actually beating a deficit target set with its EU-IMF creditors over the course of 2012.

However, the new Eurogroup chair, Jeroen Dijsselbloem, cannot yet expect an easy ride during his 30-month initial mandate compared to that of his predecessor, Luxembourg Prime Minister Jean-Claude Juncker.

Headaches including the tricky nature of negotiating over a bailout request made last summer by Cyprus, and a request by Portugal for a longer repayments schedule on its bailout — which it hopes, like Ireland, can help it get back into commercial finance markets even this year.

Irish Finance Minister Michael Noonan said the 17 eurozone countries had agreed to Portugal’s request, and EU Economic Affairs Commissioner Olli Rehn acknowledged that a successful return to the markets for these two countries “is both in the interests of themselves and, indeed, certainly in the interests of the entire European Union.”

But Spain remains the biggest active threat, not least as Dijsselbloem’s sole candidacy to head the Eurogroup was opposed by Spain in the overnight vote.

Spain, a member of the eurozone, is now Europe’s youth unemployment black spot, with a rate of about 57 percent.

And the European Commission warned on Tuesday that the country’s 2012 and 2013 public deficit targets are again veering off target.

Spain was supposed to keep the 2012 figure to within 6.3 percent of gross domestic product, but a Commission report said this would “probably not” be achieved.

Brussels publishes full economic forecasts for the whole European Union on February 22, but expects Spain to register a deficit of 8.0 percent in 2012 and 6.1 percent again this year.

The previous target for 2013 was 4.5 percent.

However there was good news from Greece, which said it had narrowed its public deficit to 8.1 percent in 2012, marking a rare improvement over targets pledged to its EU-IMF creditors.

Portugal also said it had met its 2012 public deficit target of 5.0 percent.

Spanish Finance Minister Luis De Guindos said the “complaint” over Dijsselbloem was simple, moaning that Madrid is “under represented in the European institutions” and that this was “unjust.”

Almost all the top eurozone posts are now held by nationals of members which hold top triple-A credit ratings.

The Netherlands, though, is sitting out the moves to launch a tax on financial transactions.

However, the 27 European Union ministers voted as a whole to give 11 countries led by Germany and France the green light to continue work on the scheme, although not yet to legislate for it.

Diplomats said that Britain was relaxed about the issue, and technically abstained even though it has long argued forcibly against the tax.

“It is a milestone for EU tax policy, as it paves the way for more ambitious member states to progress on a tax file, even when unanimity could not be achieved,” said the EU’s tax commissioner Algirdas Semeta.

The plans progress under a scheme first used in the field of divorce law and was last year approved a second time in the field of patents.

The Financial Transactions Tax (FTT) was initially proposed by France and Germany, then joined by Austria, Belgium, Greece, Portugal and Slovenia, and later by Italy, Spain, Slovakia and Estonia.

The European Commission will now begin drafting legislation sure to stir up more controversy.