November 14, 2012 / 3:12 PM / 5 years ago

Rehn to address EU's budget disciplinary action vs Spain

BRUSSELS (Reuters) - EU Economic and Monetary Affairs Commissioner Olli Rehn will make a statement on Spain on Wednesday afternoon that will be related to the European Union’s excessive deficit procedure (EDP) for the country, an EU official said.

Under EU budget rules, when a national budget deficit is bigger than 3 percent of gross domestic product, EU finance ministers ask the country to reduce it below that threshold by a certain deadline.

The EU executive, the European Commission, recommends to the ministers the pace of deficit reduction and checks if the country fulfils the recommendations approved by EU finance ministers.

If a country does not comply, it can be fined.

Rehn is to make his statement at about 1515 GMT.

In July, EU finance ministers gave Spain one extra year, until 2014, to bring its budget deficit below 3 percent and asked the Commission to check on Madrid’s progress after three months.

The ministers said Spain’s headline deficit should be brought down to 6.3 percent in 2012, 4.5 percent of GDP in 2013 and 2.8 percent of GDP in 2014.

The targets were based on Commission forecasts that Spain’s economy would shrink 1.9 percent in 2012 and contract 0.3 percent in 2013, unless policies change.

But a new Commission forecast from November 7 showed Spain would contract 1.4 percent both in 2012 and 2013 and, unless policies change, the headline deficit would be 8.0 percent this year, 6.0 percent in 2013 and 6.4 percent in 2014 - missing targets.

In structural terms, which strip out one-off revenues and expenses, as well as the effects of the business cycle on government income and spending, the ministers asked Spain to cut the deficit by 2.7 of GDP in 2012, another 2.5 percent of GDP in 2013 and 1.9 percent of GDP in 2014.

The latest Commission forecasts show Spain’s structural balance will improve to a deficit of 6.3 percent in 2012 from a gap of 7.5 percent in 2011 - an improvement of 1.2 points rather than the requested 2.7 percentage points.

The Commission also forecast that the structural balance would then shrink to 4.0 percent in 2013, again a smaller improvement than recommended, and then rise to 5.3 percent in 2014, a reverse of the EU ministers’ recommendation. (Reporting By Jan Strupczewski; editing by Rex Merrifield)

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