December 2, 2012 / 10:38 AM / 8 years ago

Spain's Rajoy says it may be difficult to meet deficit target

MADRID (Reuters) - Spain’s Prime Minister Mariano Rajoy said meeting the country’s 6.3 percent deficit target for 2012 would be difficult and he did not rule out seeking a bailout, in an interview published in La Razon newspaper on Sunday.

Spanish Prime Minister Mariano Rajoy (C) talks next to Spanish Deputy Prime Minister Soraya Saenz de Santamaria during a parliamentary session at Spanish parliament in Madrid November 28, 2012. REUTERS/Andrea Comas

“It is very complicated to reduce the deficit by 2.6 percentage points in the context of a recession, with so many revenue problems and with such high financing costs,” Rajoy said.

The ruling People’s Party, which went back on an electoral pledge to link pensions to inflation last week, is on track to meet the European Union-agreed deficit target of 6.3 percent of Gross Domestic Product.

But analysts say that local finances and social security costs could derail the government’s efforts. One in four of the work force is jobless in Spain, which is suffering its second recession in three years.

“Our objective is to do things well and see what happens at the end of the year,” Rajoy said in the interview.

Speculation has grown over the last months that Spain could seek a rescue after it received up to 100 billion euros ($130 billion) in European aid for its crippled financial sector in June, something Rajoy did not rule out.

“I understand that when we talk about a rescue, we are referring to the possibility that Spain could ask the European Central Bank to buy bonds on the secondary market,” he said.

“Up to this point I have not considered it necessary but if in the future I think it is in our interests, I will not have any doubts about turning to the ECB.”

Rajoy said the center-right government’s decision on Friday to not raise pensions based on inflation but instead by 1 or 2 percent in 2013 was “a decision forced by reality”.

“Pensions represent 25 percent of public spending and it is predicted that the number of pensioners will be much higher in the next few years,” Rajoy said of the decision, which will hit Spain’s 9 million retired people.

The government has introduced savings measures to end-2014 worth over 60 billion euros, and Rajoy did not rule out further cuts.

“At the moment I am not in a position to guarantee it. We have carried out a lot of reforms and the effects on controlling spending will show with time. It’s good news that the European Commission hasn’t asked for more from us in either 2012 or 2013,” he said. ($1 = 0.7689 euros)

Reporting by Clare Kane; Editing by Louise Heavens

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