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TEXT-Fitch: realistic Spain deficit target would be ratings neutral
March 1, 2012 / 4:01 PM / in 6 years

TEXT-Fitch: realistic Spain deficit target would be ratings neutral

 (The following statement was released by the rating agency)	
 March 1 - This week's announcement that Spain's public sector deficit
reached 8.51% of GDP last year, well above the official 6% target, reinforces
the desirability of setting a realistic deficit target for 2012, Fitch Ratings
The failure to hit the official target indicates that it will take longer to
reduce the deficit than previously assumed. We think the official 2012 deficit
target of 4.4% of GDP is unrealistic, and assumed a 2012 deficit of 6% when we
downgraded Spain to 'A' from 'AA-' on 27 January.	
The Spanish government has reportedly asked the European Union to consider
allowing an increase to its 4.4% 2012 deficit target. If this was agreed it
would not impact our rating, provided it did not signal a retreat from the
Spanish government's commitment to fiscal consolidation. Spain continues to be
on Negative Outlook, which primarily reflects the risks associated with a
re-intensification of the eurozone financial crisis, but also addresses the
possibility of fiscal slippage beyond the assumptions we made in January.	
Shortly after taking office, the Popular Party announced EUR8.9bn of spending
cuts and EUR6.3bn of tax increases. It is due to present its 2012 budget next
The prospect of significant fiscal slippage in Spain had been flagged up at the
end of last year, when the in-coming Popular Party government said that the
deficit would be around 8% of GDP, due largely to over-spending by regional
A significantly weaker medium-term deficit and growth outlook than were assumed
for much of 2011 have already been taken into account in our 'A' rating with
Negative Outlook. Indeed, Spain's weaker fiscal profile was one of the two main
drivers of last month's two-notch downgrade, the other being the systemic nature
of the eurozone crisis.	
The Financial Times Thursday reported comments by European Commission
Vice-President Joaquin Almunia saying that discussions on the deficit target
could start this week, but that additional data might be needed.	
The above article originally appeared as a post on the Fitch Wire credit market
commentary page. The original article can be accessed at
All opinions expressed are those of Fitch Ratings.	
 (New York Ratings Team)	

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