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June 1, 2011 8:37 am
The economically important Spanish region of Catalonia has again defied the central government over budget targets and said its deficit for this year would reach €5.4bn or nearly 2.7 per cent of gross domestic product, double the official limit of 1.3 per cent.
Andreu Mas-Colell, Catalan finance minister, made the announcement in the regional parliament shortly after the government in Madrid had boasted of a sharp fall in the central deficit in the first four months of the year.
Investors in eurozone sovereign bond markets are closely watching Spain’s efforts to reduce its overall public sector deficit because some fear it could be forced to follow Greece, Ireland and Portugal in seeking a bail-out from the European Union and the International Monetary Fund if it cannot control its finances.
Of the 17 autonomous regions, Catalonia is particularly important because its economy is as large as Portugal’s.
Mr Mas-Colell, a renowned academic economist chosen for the finance portfolio by the Catalan nationalist government elected six months ago, said the regional deficit would fall sharply from that of 2010, was marked by “austerity and credibility” and could even drop below the official target if the central government released funds owing to the region.
Spanish ministers have rejected these demands and are insisting on compliance with central targets.
They are frustrated to find that last year’s pattern, in which the central government cut its deficit more than forecast while many regions overspent, is being repeated in the current year – when the total public deficit is to be reduced sharply to 6 per cent of GDP from 9.3 per cent in 2010.
Elena Salgado, Spanish finance minister, on Tuesday released figures showing that the central deficit fell by more than half in the first four months of this year, compared with the same period last year, to €2.45bn, with tax revenues rising and spending reduced.
She said: “We are on absolutely the right course to meet the target we set,” adding that Spain’s ratio of accumulated public debt to GDP, already one of the lowest among developed economies, would meet or fall slightly below the targeted 68.7 per cent this year.
However, economists warned that deficit figures in the early months of the year gave little insight into the eventual outcome.
They also said the Spanish economy appeared to have been growing recently only because of an unexpected increase in overall public consumer spending in the first quarter.
One explanation is that regional and local authorities continued spending ahead of the May 22 elections. The Socialists, who govern at the central level, suffered heavy defeats in those polls at the hands of the rightwing Popular party and smaller parties, including the Catalan nationalists.
Edward Hugh, a Barcelona-based economist, said: “There has been overspending in the pre-election period.
“They are going to have to try to adjust for that in the second half, and that will have effects on the economy.”
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