MADRID — Spain is on track to meet the 2013 budget deficit target it agreed on with its European Union partners and should emerge from recession before the end of the year, its economy minister said Monday.
The minister, Luis de Guindos also said that the government would not require additional one-time austerity measures as part of the 2014 budget that it will present later this month. The budget will be based on an improved forecast for 2014, both in terms of overall growth and unemployment, which hit a record 27 percent earlier this year, de Guindos said.
After the financial crisis burst Spain’s construction bubble in 2008, “no doubt 2014 will be the first year when Spain will have some recovery,” he said.
Given the depth of Spain’s recession, the European Commission agreed in May to give Madrid more time to reach its budgetary targets. De Guindos said he expects Spain’s deficit to fall to the new target of 6.5 percent of gross domestic product — rather than the initial target of 4.5 percent - from 7 percent last year.
While Spain negotiated a banking bailout worth up to 100 billion euros, or $133 billion, it ended up requesting only 41 billion euros to keep afloat institutions accounting for about 30 percent of its banking sector, including Bankia, a giant lender that Madrid nationalized in May 2012.
At the time of Bankia’s near-collapse, the center-right government of Prime Minister Mariano Rajoy initially resisted any outside intervention in the banking sector. In hindsight, however, de Guindos described the bailout Monday as “a model of what should happen” when a financial sector finds itself in such a precarious situation.
“The bailout of the Spanish banks prevented a bailout of the whole of Spain,” he said.
Although officials from the International Monetary Fund and other creditors started another review of Spain’s banking progress Monday, de Guindos suggested that “Spanish banks don’t have an important capital need,” implying that Spain would not require an extension of its bank bailout.
For banks that sought to raise capital, he added, “the capacity to access the markets is completely different to a year ago.” Last week, Banco Sabadell announced that it was raising up to 1.4 billion euros to bolster its balance sheet and meet regulatory demands.
Furthermore, the interest rate premium demanded by investors for buying Spanish bonds compared to Germany’s benchmark bonds fell this month below the comparable premium on Italian bonds for the first time since March of last year.
The Madrid government has forecast that Spain’s economy would grow 0.5 percent in 2014 after contracting by 1.3 percent this year. De Guindos would not say what the improved 2014 forecast would be. And while unemployment is expected to continue falling, he warned that Spain still faced significant challenges in terms of creating jobs and reviving consumer spending.