Spain: Political Uses of a Deficit Target

Spain is negotiating with the European Union to receive a softer deficit target. Brussels has requested that Madrid reach a deficit of 4.5 percent of gross domestic product this year, down from 6.98 percent in 2012. Madrid wants authorization to have a deficit of 6 percent of gross domestic product, which would allow Prime Minister Mariano Rajoy's government to ease austerity measures. An agreement is likely, even if Spain and the European Union reach a compromise figure (somewhere around 5.5 percent), because both Madrid and Brussels are interested in slowing down political tensions at the EU level and within Spain. Both would benefit in the short term from a softer deficit target, though the decision could create larger problems for both in the future.

Another factor in the negotiations is Madrid's relationship with Spain's autonomous regions. Rajoy's government wants to use its softer deficit target as a negotiating tool with Catalonia, which needs funds and financial lenience from Madrid. Rajoy is seeking to exploit political divisions within the Catalan government to weaken the region's independence claims.