Spanish spending woes

Bank of Spain Governor Luis Maria Linde said on Wednesday the country's public deficit might well be considerably larger this year than agreed with governments in fellow European nations.

The European Union executive had told Madrid it needed to trim its budget deficit to 6.3 percent of gross domestic product (GDP) this year, down from 9.4 percent in the previous year and with a view to pushing the deficit rate below 3 percent in 2014.

Spanish Finance Minister Cristobal Montoro claimed the central bank's fears were unfounded, citing a rather inconclusive drop in the central government budget deficit.

Still mired in recession

But contradicting a string of optimistic notes from government spokesmen of late, the central bank said it could not exclude the possibility of the country failing to reduce public spending in line with Brussels' directive.

Linde told a Senate meeting in Madrid that there were no signs of productivity levels improving or jobs being created in a nation which had logged the highest unemployment of all Organization for Economic Co-operation and Development (OECD) member countries.

According to the latest data from the national statistics office, Spain's economy will shrink by 1.5 percent in 2012, while joblessness will continue to hover around the 25 percent mark. The Bank of Spain thus did not see eye to eye with Prime Minister Mariano Rajoy who claimed the worst was over for the country.

hg/dr (dpa, Reuters)