Spain vowed Sunday to deliver on its promise to reduce its budget deficit, as the country's economic situation sparks concern in the eurozone and financial markets. "We're going to do it," Spain's secretary of state for EU affairs, Inigo Mendez de Vigo, told reporters on the sidelines of an informal meeting of senior European officials in Finland.
He rejected fears expressed by many economists about whether Spain, given the recession it is experiencing this year, will be able to meet its EU obligation to slash its budget deficit to 3.0 percent of gross domestic product (GDP) next year.
"We are serious. Spain is back to seriousness," he insisted. EU Commissioner for Economic Affairs Olli Rehn, attending the same talks in Finland, on Saturday urged Spain to meet its budget obligations or face sanctions on the financial markets.
He noted that the markets had already called for higher borrowing rates for Spain after Madrid relaxed its public deficit target for this year. "Because there was a perception that Spain is relaxing its fiscal targets for this year, there has already been a market reaction of several dozens of basis points on Spanish bonds rates, which for the first time in a long time (surpassed) the Italian interest rates," Rehn said.
"That illustrates how fragile the situation still is," he said. A team of experts from the European Commission is due to hold budget talks with the Spanish government in Madrid soon.
Rehn described that as "normal" given the heightened EU monitoring of member states. Italian Prime Minister Mario Monti meanwhile expressed "concerns of the European Union about Spain" on Saturday.
Madrid sparked worries in the EU when it announced that its 2011 budget deficit was wider than expected, reaching 8.51 percent of GDP instead of the 6.0 percent initially announced. It also warned that it would not be able to meet the 2012 target agreed with the EU of 4.4 percent. Brussels allowed Madrid to relax the level to 5.3 percent.