The European Commission (EU) announced on Thursday that Spain’s budget deficit will increase instead of meeting its deficit reduction deadline. EU rules dictate that Spain must reduce its deficit below 3% of its GDP. Under current circumstances, this means that the government will need to reduce its deficit by 2.8% in 2016.
A new 2016 budget draft forecasts that Spain will maintain a 4.2% deficit in 2016, instead of reaching the 2.8% that it agreed on.
The commission has already discussed the issue with Spain and indicated that the country risked over-forecasting its deficit targets. Spain has stated that any overspending that may be done will be offset by tax revenue growth.
The major issue is that there is a divide between Spain and the EU in terms of targets. An announcement made by Spain states that the structural deficit will fall to 1.7% in 2015 and 1.6% in 2016. Under EU rules, the structural deficit must decline by 0.5% of the country’s GDP until deficits are balanced under the 3% requirement.
The EU forecasted a different outcome for the country, stating that structural deficit will actually rise in 2016 from 2.5% to 2.6%.
At the end of November, the European Commission will discuss whether Spain is breaking any of the fiscal rules set by the EU, and more importantly, which measures will be taken against the country.