Spain must explain soon to the European Commission why its 2011 budget deficit was substantially higher than expected and deliver clear future budget plans, the Commission said on Tuesday.
Spain's 2011 budget deficit came to 8.51 percent of GDP, the finance minister said on Monday, up from early estimates of 8.2 percent and far above forecasts from the Commission for something nearer 6.5 percent.
We need to understand the causes of this significant slippage, Commission spokesman Olivier Bailly told a regular briefing in Brussels.
We need to have this analysis before coming to a conclusion. We need this to help the Spanish authorities prepare their budget and we need these elements to help Eurostat in April to finalize and validate these figures.
Spain, which has enacted austerity measures and economic reforms to avoid being sucked into the euro zone debt crisis, presents on Friday its 2012 spending ceiling, a key element in the budget for the year.
A government official said Madrid could soon agree on a new deficit target that it can take into account before completing the new budget, which it plans to present on March 30.
The logic of these things means that the institutions of the European Community and the Spanish government will reach an agreement, which will be reflected in this year's budget, Antonio Beteta, secretary of state for public administrations, a division of the finance ministry, told RNE radio on Tuesday.
Beteta said Friday's spending ceiling will include the 2012 deficit target that would come from Brussels, implying a new target would be set this week - although Bailly flatly ruled out such an idea.
We are not talking about giving more flexibility to any member state when it comes to fulfilling commitments, Bailly said.
Still, a Spanish government spokeswoman declined to confirm that Madrid was hoping for a relaxation of its current target of a deficit of 4.4 percent of gross domestic product.
Spain will have to come up with more than 40 billion euros in savings to meet that target, implying spending cuts that most economists see as impossible given that the economy is already slipping into recession and the jobless rate is the highest in the European Union at 23 percent.
EU Economic and Monetary Affairs Commissioner Olli Rehn also reiterated on Tuesday that the Commission would not begin to explore a new target for Spain until the country has presented a budget based on the current objective for deficit reduction.
REGIONS TO BLAME
Spanish officials said the overspending in 2011 was mostly due to the failure of the country's 17 autonomous regions to cut their deficits. Spain's new conservative government recently announced sanctions for those regions that do not meet deficit targets in the coming years.
But the Commission said it still needed more information on how the country so badly overshot its objective.
Bailly said Spain also needed to deliver its 2012 budget estimates in the coming weeks, not at the end of March, saying the task in hand was so great it could not be delayed.
The magnitude of the challenge is so high that we need to have something credible in the process, so taking another few days, another few weeks to have something credible, will be, might be key for the success of this operation, he said.
We expect now the Spanish authorities within the coming weeks - in the course of March - to come up with a draft budget for 2012, he said, emphasizing that the end of March would not be acceptable.
(Reporting by Charlie Dunmore and Rex Merrifield in Brussels, and by Fiona Ortiz in Madrid, Writing by Luke Baker)