European Commission warns Spain: either make extra efforts or maintain 2011’s

The deterioration of the sovereign debt crisis in the first half of this year, along with financial fragmentation and the worst international scenario will cause a decline in GDP for the whole of the European Union, for both this and next year, according to the autumn economic prospects of the European Commission (EC).

The worst starting point will make the recovery planned for 2013 more modest than the one estimated in the spring report where a stunted growth of 0.1 percent compared with the – 0.4 of this year is expected.

The Commission has also revised forecasts for Spain, to – 1.4% in 2013, in line with the market consensus forecasts and away from the Spanish government forecast. Madrid has done wishful thinking instead of economic science pointing out a – 0.5 percent slowdown.

Despite this dramatic discrepancy, the most relevant point of the ECB’s report is the forecast that all Spanish public administrations deficit will be of 7 percent in 2012 (excluding capital injections to the banks) and 6 percent in 2013.

If nothing is done by 2014, the disappearance of temporary measures adopted in 2011 (such as the income tax rise) would make deficit climb to 6.4 percent. The Spanish government has only one choice: new efforts or make 2011 adjustment measures permanent.

EC considers that part of the 2012-13 deviation is due to a worse economic climate: structural deficit would be reduced from 7.5 percent in 2011 to 6.3 percent in 2012 and up to 4 percent in 2013.

As for peripheral countries, the EC expects Italy’s GDP to fall 2.3 percent in 2012; Portugal’s a 3 percent and Greece’s a 6 percent, whereas Ireland’s will grow 0.4 percent. Expectations for 2013 are different: Spain will decrease a 1.4 percent, Italy will decrease only 0.5 percent; Portugal, a 1 percent; Greece 4.2 percent whereas Ireland will grow by 1.1 percent.