Spain begs time to fix finances

Spain forecast it would climb out of its bitter recession in 2014 but needed two extra years to meet the European Union's target for reining in its public deficit. It announced its latest gloomy growth forecast for the current year along with a "stability plan" that aims to spur economic growth after more than a year of harsh cutbacks.

The government said Spain's economy, the eurozone's fourth-biggest, would shrink by 1.3 percent in 2013 and timidly return to growth of 0.5 percent in 2014. But it admitted it would likely take until 2016 to bring the country's public deficit -- a crucial measure of financial stability -- under the European Union's three-percent limit.

Unemployment will slide to 26.7 percent over 2014 and to 25 percent in 2015, the government added, announcing the latest crisis reforms it must send to Brussels for approval.

It forecast the public deficit would be 6.3 percent of gross domestic product (GDP) in 2013 -- well above its earlier target of 4.5 percent. The deficit would ease to 2.7 percent by 2016, it said, pushing back by two years the target earlier agreed with European authorities to bring it within the three-percent limit.

The EU's executive later approved the announcement, saying in a statement that it considered Spain's plan a "balanced -- but still ambitious -- fiscal consolidation path, given the difficult economic environment".

The 2013 growth figure, sharply down from an earlier estimate of a 0.5 contraction, reflected the ongoing damage from the collapse of a building boom in 2008 that thrust Spain into a deep double recession. "In 2013 the worst quarter will be the first quarter... and from there the data will improve," Finance Minister Luis de Guindos told a news conference. "The year 2014 is the year of recovery. We will reap the fruit of our economic policies." Meanwhile the public debt would climb to 91.4 percent of GDP in 2013 and reach 99.8 percent by 2016, he said.

The government is fighting to stabilise Spain's public finances through austere economic cuts that have sparked angry street protests. Budget Minister Cristobal Montoro on Friday called it "a Titanic austerity effort". Prime Minister Mariano Rajoy says the steps are needed to curb the public deficit and help the country save 150 billion euros ($195 billion) by 2014.

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