Rajoy rolls back on Spain's previously stated deficit-reduction goal

Spain's new conservative prime minister has rolled back on Spain's previously stated deficit-reduction goal, saying Wednesday that the country will do the best it can to chip away at the recently revised total in the face of a further recession.

Mariano Rajoy spoke two days after his government revealed the government deficit for 2011 was 8.5 per cent of the Spain's economic output, far above the 6 per cent forecast by the previous Socialist government.

Spain's commitment to the European Union is to get the deficit down to 4.4 per cent this year. However, reaching that target from the new height of 8.5 percent would require further austerity measures.

Rajoy told reporters Wednesday Spain would cut the deficit this year "as much as we can."

Spain's latest deficit problems come as the country is about to enter another recession, with unemployment at nearly 23 percent. The economy shrank in the fourth quarter and is expected to do so again in this one.

Rajoy added: "But we have to make these (deficit-cutting) policies compatible with those which serve to create jobs."

He declined to say if Spain will ask the European Union at a summit Thursday to be more flexible about its efforts to get its public finances under control.

EU Competition Commissioner Joaquin Almunia said Wednesday in Madrid that the EU cannot revise Spain's deficit target until Brussels knows why the 2011 deficit came in so much higher than forecast. "It is better to have the discussion with more data on the table and as few headlines in the media as possible,'' he told a meeting of business leaders.

Spain is to present a 2012 budget by the end of March. It is currently operating on an extension of the 2011 budget.

The government has already enacted about 15 billion euro ($20 billion) in spending cuts and income tax hikes to reduce the deficit.

Thousands of Spanish university and high school students held street rallies Wednesday in Madrid, Barcelona and other cities to protest cuts in spending on education.

Rajoy warned again that hard times lie ahead. "I ask all the Spanish people to understand that things are not easy, that we will have to make an effort, but to rest assured that we will get through this," he said.