BRUSSELS (MNI) – Economic forecasts published by the European
Commission showing that Spain would likely miss its deficit reduction
targets this year and next do not include potentially significant
measures from the country’s regional governments, EU Economics and
Monetary Affairs Commissioner Olli Rehn said on Friday.

The Commission’s forecast “could not take into account budgetary
plans of the autonomous regions. as they are still pending,” Rehn said.
He noted that the regions were due to unveil their fiscal plans in
mid-May.

The spending plans of the regions could potentially have a big
impact on Spain’s overall target, since they account for a large
percentage of the country’s national spending.

“For the central government, we expect the deficit target to be
broadly in reach,” Rehn said, urging Madrid to exert a “very firm grip
to curb the excessive spending of regional governments.”

He added that, “rigorous and immediate application of the new
fiscal stability law should help.”

Rehn said that the key for Spain to reinforce and restore
confidence now “is to tackle the immediate fiscal and financial
challenge with full determination.”

The EU’s top finance official called on the government to take
“very decisive action in order to recapitalize the savings bank sector
and restore its viability.”

The Commission forecast that Spain’s deficit would amount to 6.4%
of GDP this year, well above its 5.3% target, and 6.3% in 2013, more
than double the 3% ceiling of the EU Stability Pact, which Madrid has
pledged to respect by the end of next year.

Spain’s economy will contract by 1.8% this year and 0.3% in 2013,
the Commission predicted.

Spain is set to join Greece at the top of the agenda of a Eurozone
finance ministers’ meeting in Brussels on Monday.

Turning to Italy, Rehn said that the country was “on track” to meet
its EU target.

According to the Commission’s Spring Economic Forecast, Italy’s
structural primary surplus is set to increase by about one percentage
point to 5.5% of GDP in 2013, despite a rise in interest payments due
on Italy’s large public debt, expected to peak at 123.5% of GDP in 2012.

–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com

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