Spain sees 2012 deficit target jump if bank aid included

Spain will meet its 2012 public deficit target as dictated by European guidelines, but the shortfall will jump by more than one percentage point if aid to its struggling banks is taken in to account, the government said on Saturday.

Spain would meet the deficit goal of 6.3% of GDP this year not including these payments to its banks, Treasury Minister Cristobal Montoro said. The public deficit in 2012 would rise to 7.4% of gross domestic product while the 2011 deficit rose to 9.4% of GDP from 8.9% of GDP, taking these payments in to account, Montoro said.

"The official figure is that which I've given you, but with a foot note explaining where some of this deficit comes from," Montoro told journalists after presenting the 2013 budget to Parliament for approval. "Everything within the deficit derived from financial operations aren't included ... they're considered one-offs."

Spain has asked for up to 100 billion euros ($128.65 billion) for its crisis-hit banks, though the debate among Spain's European partners rages over whether that money would go directly to its lenders or first via public coffers.

On Friday, an independent report showed Spanish banks will need up to 59.3 billion euros in extra capital to ride out the economic downturn.

Rising borrowing needs
Spain's debt as a ratio of gross domestic product will reach 90.5% by end 2013 after hitting 85.3% of GDP by the end of this year, according to the budget document. "The notable increase in the debt-to-GDP ratio in 2012 and, to a lesser extent 2013, is due to a greater debt on the back of the economic crisis and the effect of state instruments on public accounts," the Treasury said in the document.

The instruments include the power deficit bond programme, FADE, the service provider fund for regional governments, Spain's part in aid granted to Ireland, Greece and Portugal and the re-capitalisation loan for the country's banks, it said.

Spain is at the centre of the euro zone debt crisis as nervous investors demand ever higher premiums to hold Spanish debt on concerns the government cannot control its finances in the midst of a deepening recession.

Prime Minister Mariano Rajoy has delayed any plea for aid, which would kick-start a European Central Bank plan to buy debt and ease financing costs, though this week has passed reforms and a budget plan in what many see is an effort to pre-empt the likely terms of a bailout.

The central government sees budget savings of 13 billion euros in 2013, with spending down 7.3% - not including social security and interest payments - and income rising 4% thanks to a 15% leap in value-added tax take.

"My general view is that this is an optimistic budget, in the sense that predictions for the contraction in 2013 are very optimistic," said Xavier Vives, economist at business school IESE, adding that he expected the budget to be revised as the crisis developed.

The budget details on Saturday showed Spain's debt ratio included 30 billion euros of the planned 100-billion-euro aid request for the country's banks.

The Treasury saw gross debt issuance requirements of 207.2 billion euros next year after budgeting in 2012 for gross issuance of 186.1 billion euros.

Spain faces debt redemptions worth 159.2 billion euros next year, up slightly from 153.2 billion euros in 2012, the document showed. While almost all the issuance would be in medium and long-term bonds and Treasury bills, the document noted the government would consider issuance of up to 6 billion euros in other currencies or debt instruments.