Spain is already planning to breach its budgetary targets, defying European leaders on the day they signed their historic fiscal pact.
Mariano Rajoy said he had decided to set a new target rather than extract €44bn (£36.6bn) from the budget at a time of economic crisis Photo: Getty Images
Mariano Rajoy, prime minister of Spain, said the budget deficit would be 5.8pc of GDP in 2012 - more than 30pc higher than the 4.4pc target agreed by Brussels.
In a move that was heralded in Spain as defiance against the German-led austerity drive, Mr Rajoy said he had decided to set a new target rather than extract €44bn (£36.6bn) from the budget at a time of economic crisis. Mr Rajoy said it was now a "sensible and reasonable" target. "This is a sovereign decision made by Spaniards," he said.
Spain's appeals to Brussels to relax the targets have been rebuffed in recent days. The European Commission has reportedly insisted on investigating the reasons for Spain missing its previous targets first.
At the EU summit in Brussels this week, leaders said the targets were non-negotiable. Swedish Prime Minister Frederik Reinfeldt said: "The first thing that we do after the new rules [on budget stability] should not be to relax them."
Mr Rajoy insisted the slippage was just on an interim target and Spain would still honour its commitment to bringing its deficit down to 3pc of GDP by 2013. But the announcement was seen as rebuffing other European leaders since the figures do not have to be confirmed until April.
However, European leaders insisted the eurozone is at last emerging from the protracted debt crisis. They said a raft of emergency measures had calmed the markets and bought breathing space to tackle the eurozone’s longer-term economic problems.
Nicolas Sarkozy, France’s president said: “We have not exited the economic crisis but we are turning the page. The strategy we put in place is bearing fruit.”
Mr Sarkozy's comments came prior to Moody's downgrading Greece to the lowest rating on its bond scale. The move followed a recent deal with private investors that would see them ultimately lose 70pc of their holdings in Greek debt.
The ratings agency cut Greece's sovereign rating to C from Ca, arguing that the risk of default remains high, even if a bond-swap deal with banks and other private investors, due to be completed this month, is successful.
Raoul Ruparel of Open Europe, the London-based think-tank, said the move "puts the Spanish government on a collision course with other eurozone leaders". He added: "This clash hints at the challenges which lay ahead for the eurozone and how tough it may be to balance domestic political will with the drive for austerity in the eurozone."
Twenty-five member states - all except Britain and the Czech Republic - signed a treaty agreeing to a "golden rule" to balance their budgets or face penalties. Angela Merkel, the German Chancellor, said the pact would "last forever".
Herman van Rompuy, who was re-appointed as President of the European Council, said the agreement would help "prevent a repetition of the sovereign debt crisis." But he admitted the deal still face significant hurdles before it becomes law. "After today's signature comes the moment for ratification," he said. "You now all have to convince your parliaments and voters that this treaty is an important step to bring the euro, durably, back to safe waters."
France's Socialist presidential candidate, Francois Hollande, has pledged to renegotiate the pact if he is elected in April, while Ireland is planning a referendum.
Meanwhile, a raft of economists has warned the targets will plunge the eurozone into deeper recession.
Fresh figures showed that Spain's jobless numbers hit a record high in February, surging 2.44pc from the previous month to 4.71m people. Madrid's borrowing costs rose above Italy's for the first time since August 2010.
The International Monetary Fund (IMF) said Ireland remains on target to reduce its budget deficit to 8.6pc of GDP but said it was still doubtful that Dublin would be able to borrow from the debt markets by next year.
The European Central Bank (ECB) said overnight deposits from institutions soared to a record high of €776.9bn following its second injection of capital via cheap loans on Wednesday. Mario Draghi, head of the ECB, reportedly told EU leaders at the summit that the €530bn special loan programme was only a temporary solution to the crisis and one that would not be repeated.
Meanwhile, David Cameron claimed victory after 11 EU countries joined the UK in signing an Action for Growth pact designed to increase competition in the service sector, liberalise energy markets and conclude free trade deals. His demands, set out in a letter two weeks ago, were initially ignored by Europe. "Britain's voice was heard," he said.
European stockmarkets were flat.
Nicolas Sarkozy, France’s president said: “We have not exited the economic crisis but we are turning the page. The strategy we put in place is bearing fruit.”
Mr Sarkozy's comments came prior to Moody's downgrading Greece to the lowest rating on its bond scale. The move followed a recent deal with private investors that would see them ultimately lose 70pc of their holdings in Greek debt.
The ratings agency cut Greece's sovereign rating to C from Ca, arguing that the risk of default remains high, even if a bond-swap deal with banks and other private investors, due to be completed this month, is successful.
Raoul Ruparel of Open Europe, the London-based think-tank, said the move "puts the Spanish government on a collision course with other eurozone leaders". He added: "This clash hints at the challenges which lay ahead for the eurozone and how tough it may be to balance domestic political will with the drive for austerity in the eurozone."
Twenty-five member states - all except Britain and the Czech Republic - signed a treaty agreeing to a "golden rule" to balance their budgets or face penalties. Angela Merkel, the German Chancellor, said the pact would "last forever".
Herman van Rompuy, who was re-appointed as President of the European Council, said the agreement would help "prevent a repetition of the sovereign debt crisis." But he admitted the deal still face significant hurdles before it becomes law. "After today's signature comes the moment for ratification," he said. "You now all have to convince your parliaments and voters that this treaty is an important step to bring the euro, durably, back to safe waters."
France's Socialist presidential candidate, Francois Hollande, has pledged to renegotiate the pact if he is elected in April, while Ireland is planning a referendum.
Meanwhile, a raft of economists has warned the targets will plunge the eurozone into deeper recession.
Fresh figures showed that Spain's jobless numbers hit a record high in February, surging 2.44pc from the previous month to 4.71m people. Madrid's borrowing costs rose above Italy's for the first time since August 2010.
The International Monetary Fund (IMF) said Ireland remains on target to reduce its budget deficit to 8.6pc of GDP but said it was still doubtful that Dublin would be able to borrow from the debt markets by next year.
The European Central Bank (ECB) said overnight deposits from institutions soared to a record high of €776.9bn following its second injection of capital via cheap loans on Wednesday. Mario Draghi, head of the ECB, reportedly told EU leaders at the summit that the €530bn special loan programme was only a temporary solution to the crisis and one that would not be repeated.
Meanwhile, David Cameron claimed victory after 11 EU countries joined the UK in signing an Action for Growth pact designed to increase competition in the service sector, liberalise energy markets and conclude free trade deals. His demands, set out in a letter two weeks ago, were initially ignored by Europe. "Britain's voice was heard," he said.
European stockmarkets were flat.
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