Eurozone eases Spain’s deficit target

BRUSSELS – Eurozone finance ministers on Monday gave unemployment-ridden Spain some more wiggle room in cutting its big deficit, signaling that new, tighter rules against overspending in the currency union retain some flexibility for hard-hit countries.

The ministers from the 16 other states that use the euro said Spain had to make further cuts worth 0.5 percent of gross domestic product, which indicates that the country is now expected to slash its government deficit to around 5.3 percent of GDP this year from about 8.5 percent last year.

That is still below the 5.8 percent deficit target Spanish Prime Minister Mariano Rajoy announced earlier this month, but significantly softer than the 4.4 percent deficit the country had originally promised to its partners in the euro.

Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said it was “of the utmost importance” that Spain brings its deficit down to below 3 percent of GDP – and back in line with European Union rules – by 2013.

Many economists have warned that cutting spending too quickly could do more harm than good in a country like Spain. Spain’s debt level is below the eurozone average, but unemployment is running at a record high and a shaky housing market risks piling huge losses on an already weak banking system.