Spain's 2012 deficit below 7% of GDP

Spanish deficit ended 2012 at a level below 7 percent of GDP, said Spain's Prime Minister Mariano Rajoy on Wednesday in his state of the nation address. Without giving exact figures, Rajoy said the deficit was generally anticipated by a majority of financial institutions and commentators. Although it looks highly unlikely the deficit will reach 6.3 percent as required by the European Union (EU), Rajoy, looking back over his first 14 months in office, said his government had made fiscal adjustments which were "unprecedented in the country's history." He said cooperation among different levels of administration made possible a reduction of around 21 billion euros (28 billion U.S. dollars) in state spending. Rajoy praised his government's reforms, adding the fight against fiscal fraud had earned around 11.5 billion euros in 2012, which he described as a "key" factor in reducing the deficit. He said another pillar of his government's reforms was the restructuring of the banking system, adding that measures taken by the former executive (the Spanish Socialist Party) had been insufficient and was the main reason his government had been forced to ask for EU help for Spain's banks. "The toxic 30 percent of the financial system could negatively affect the healthy 70 percent," Rajoy said. He emphasized the restructuring process was giving good results as Spain's financial entities could issue in 2013 around 6 billion euros in bonds. Defending his government's structural and labor reforms, he said they aimed to increase flexibility in the Spanish labor market that has around 6 million people unemployed. Rajoy said he was "happy to tell Spaniards the situation has improved," because it meant that the citizens' efforts had positive results. He based the breaking of the majority of his electoral promises on the fact that when his party won the November 2011 election, Spain's deficit stood at 9 percent of GDP and "there was an imbalance of 30 billion euros to correct." Despite these supposed improvements, Rajoy said the reforms would continue because the "economic reality" of the country "is terribly hard." Rajoy's assessment of the situation varies from that offered by the ratings agency Moody's on Tuesday. Moody's said Spain's banks still faced difficulties in terms of solvency and funding and had many challenges to face. It forecast a negative environment for the banking sector and also for Spain's sovereign debt, which may influence investor confidence and make it difficult to get funding.