Spain 2011 finances could be worse than feared

Spain's already strained public finances could turn out to have been in even worse shape than expected last year, the government warned Monday, setting the tone for a difficult 2012. On Friday, the new right-leaning government said the public deficit would easily exceed the 2011 forecast of 6.0 percent of GDP as it unveiled spending cuts and tax hikes totalling 15.1 billion euros ($19.6 billion) for this year. On Monday, Finance Minister Luis de Guindos said the true position could be even worse, blaming the country's wayward provinces for the problem. "It is possible that it exceeds 8.0 percent (of Gross Domestic Product) but I hope it won't be much higher," de Guindos said. "A big part of this difference (in the forecasts) comes from the regions," de Guindos told private radio Cadena Ser, adding that he expected them to "make an effort" to help restore fiscal health. Spain's 17 autonomous regions, which are responsible for health and education services, were hard hit by a 2008 crash in the housing market and are a growing source of concern for economists and policy-makers as Madrid tries to stabilise the country's finances. "Everyone must participate in this effort," the minister said. "We are in a very difficult situation, very complex, and without a doubt the hardest in the past decades in Spain." Prime Minister Mariano Rajoy, freshly installed after beating the Socialists in November elections, has vowed to meet the 2012 target of reducing the public deficit to 4.4 percent of GDP. Madrid aims to narrow the deficit to 3.0 percent -- the EU limit -- by 2013 through a combination of spending cuts and tax hikes to better balance the government's books . The public budget in EU terms comprises the budgets of central government, welfare systems and local authorities. De Guindos said measures to rein in the deficit would be accompanied by structural reforms in the labour market and the financial system aimed at reviving Spain's economy. "The government has a very aggressive reformist agenda for the next few weeks and months," he said. "We all must reduce the public deficit but I also believe that we must put in place economic reforms because Europe can't limit itself to a simple economic policy of budget adjustments. "It is economic reforms that will allow us to emerge from the crisis." A full budget plan is to be unveiled in March when the exact 2011 public deficit is known, the government has said. In a another sign of the sharp economic downturn, Spanish car sales plummeted 17.7 percent in 2011, falling to their lowest level since 1993, hurt by the an unprecedented 21.5-percent unemployment rate, the ANFAC automobile association said Monday. "2011 is a year to be forgotten," said Juan Antonio Sanchez Torres, head of the Ganvam car dealers association, adding that a credit crunch and the eurozone crisis had seen new car registrations halve from pre-crisis levels. In the year, 808,059 vehicles were sold against 982,015 in 2010 when an incentive measure boosted new car purchases. As a gesture to Spain's near five million unemployed, the government last week extended a 400-euro-a-month payment for people whose jobless benefits have run out. The payments had been due to expire in February. Despite the blunt warning Monday by the finance minister, the stock market put on a solid 1.84 percent, boosted like other bourses by strong economic data in Germany, the EU's top economy.