Spain fell short of budget deficit in 2012 according to Eurostat data

France and Spain fell short of their budget deficit goals last year, EU data showed on Monday, although the overall fiscal picture for the euro zone improved.

France's 2012 budget deficit was 4.8 percent of economic output, statistics office Eurostat said in the final reading of all 27 countries' public accounts. It compared with a target of 4.5 percent.

Spain's budget shortfall was 7.1 percent, excluding bank recapitalisation - higher than the government's 6.98 percent official year-end reading, and well above Madrid's original target of 6.3 percent.

Overall, the 17-nation euro zone looked much better off at the end 2012, however. Its combined fiscal deficit was 3.7 percent of gross domestic product, compared with 4.2 percent in 2011 and 6.5 percent in 2010.

Sharp public spending cuts have been the euro zone's strategy for clawing back credibility with investors after a decade-long credit-fueled boom.

Record unemployment and protests across Europe, however, are forcing something of a rethink, with the focus shifting to growth strategies. Both Spain and France are expected to get more time to reach EU-mandated targets.

EU leaders are desperate for economic growth as the euro zone struggles through its second consecutive year of recession, and some officials say they will back off from the spending cuts blamed for deepening Europe's economic downturn.

However, it is not yet clear how big a policy shift EU policymakers are planning.

EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters in Washington on Thursday that financial leaders from the group of 20 economies calling for less austerity were "preaching to the converted."

However, Germany and the European Central Bank still want to see the euro zone put its finances in order after a decade of borrowing that saw countries' debt and deficit levels rise dramatically.

The task facing Spanish Prime Minister Mariano Rajoy, meanwhile, remains daunting if he is eventually to bring Spain's budget deficit to the 3-percent level deemed by the European Union as economically healthy.

Adding in the cost of recapitalising Spain's banks and a 40 billion euro ($52 billion) bank bailout from the euro zone, Spain's deficit was nearly 11 percent in 2012, higher than the European Commission's forecast of 10.2 percent, and an increase from the 9.4 percent deficit of 2011.