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By Robert Hetz
MADRID, May 30 (Reuters) - Spain’s central bank governor, who is stepping down early in a storm over his country’s deep banking problems, on Wednesday defended his record and said there was a chance the government would miss its deficit target this year.
A day earlier Miguel Angel Fernandez Ordonez said he would step down on June 10, a month before the end of his six-year term, after government officials heaped blame on him for the rising cost of bailing out troubled banks.
“You have seen the discreditation campaign against the Bank of Spain, saying that it has not known how to supervise ... I believe we should be able to give our side of the story,” Ordonez told reporters after a budget hearing in the Senate.
The Bank of Spain has been widely blamed for failing to control a banking crisis linked to billions of euros of toxic assets stemming from a 2008 property crash, which threatens to drive Spain to seek a bailout.
A source with knowledge of the matter said Ordonez had chosen to leave early after the ruling party blocked his request to defend himself in parliament and the government humiliated him by ordering an independent audit of the banking system.
With Ordonez out by mid-June, a new governor will be in place to sign off on the independent audit.
In Wednesday’s hearing, the governor said there was a chance that the government would miss its deficit target for this year.
“There are risks to the downside in tax income for 2012,” he said, noting that spending could also be higher than expected due to higher unemployment payments.
He said the government could bring forward a rise in value added tax from 2013.
Spain has to find 19 billion euros to rescue its fourth largest bank, Bankia, and its indebted regions have to refinance far more debt than anticipated as tax revenues slump in a recession.
The government is set to impose a new mechanism on Friday to provide funds to the regions under strict conditions. A government source said on Tuesday that Spain will also put forward a three-year plan to control central government spending in the months to come.
The European Commission was due to put forward its policy recommendations for all euro zone states later on Wednesday. That could be the point at which it accepts that Spain and others will not be able to meet stringent deficit targets.
Spanish borrowing costs jumped to near euro-era highs on Wednesday on concerns over the bank rescue.
Economy Minister Luis de Guindos said Spain would raise debt through its FROB bank restructuring fund to rescue Bankia, but these plans looked prohibitively expensive with 10-year borrowing costs at 6.54 percent, close to levels at which Ireland and Greece sought international bail-outs.
De Guindos said borrowing costs were being pressured by uncertainty over Greece’s election, which could decide whether or not it stays in the euro, not by doubts over the banks.
His ministry said on Wednesday that Spain had not consulted the European Central Bank on its rescue plans for Bankia after backtracking on a proposal to inject government debt into the lender.
The premium that investors demand to hold 10-year Spanish debt over its German equivalent touched a euro-era high of 521 basis points on Wednesday. (Reporting by Robert Hetz, Nigel Davies, Carlos Ruano and Julien Toyer; Writing by Sonya Dowsett; Editing by Kevin Liffey)