July 9, 2012

Spain may get extra year to meet targets

Eurozone finance ministers meeting in Brussels, Belgium, on Monday will discuss giving Spain an extra year to meet its deficit targets.

Spain had been told to cut the difference between its income and spending to within 5.3% of gross domestic product (GDP) by the end of 2012.

But European Union sources tell CNN that ministers will probably revise that goal upward to 6.3% Monday, in accordance with a draft put forward by the European Commission late Friday.

As part of the plan, Spain will be asked to cut its headline deficit to 4.5% of GDP for 2013 and 2.8% for 2014, the sources said.

The ministers are meeting 10 days after their heads of government agreed to use the bloc's temporary bailout funds to recapitalize Spain's ailing financial system and to set up a joint supervisory body for the area's lenders.

The aim of Monday's summit is to figure out how to implement those proposals, though EU insiders are doubtful the politicians will put numbers on the page yet.

One official close to Monday's discussions said they are likely to include the so-called Troika group of lenders, which includes the EU commission, the European Central Bank and the International Monetary Fund.

"There's still some technical work that needs to be done," said the official, speaking on the condition of anonymity.

"As such, they (finance ministers) are aiming for more of an agreement in principle rather than a commitment."

A month ago, the same eurozone finance ministers agreed to put aside 100 billion euros ($150 billion) to shore up the capital base of Spain's banks -- money that will come initially from the region's nonpermanent European Financial Stability Facility.

Audits commissioned by the Spanish government recently showed the sector is likely to need 60 billion to 70 billion euros in extra cash to stay solvent.

But the eurozone seems to be far from the point of disbursing that money.

'"We may well hear talk of brackets rather than final numbers," the official told CNN.

That may be hard for the bond markets to digest.

Ahead of the gathering, the yield on Spain's 10-year bonds surpassed the 7% level that forced Greece, Ireland and Portugal to accept bailouts.

When it comes to Greece, it seems that Brussels is less optimistic about whether any headway would be made.

"The expected outcome is likely to be less concrete," the official said.

"The idea is essentially for the new Greek finance minister to outline his government's policy intentions and for the Troika to give an initial reading about how things have gone thus far.''

A broader gathering among the full EU finance ministers will take place Tuesday.

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