EU demands 'extra' 2011 deficit measures of Spain

Europe on Tuesday told Spain it must introduce "extra" measures in its 2011 budget if it is to restore its public deficit to the EU limit of three percent of GDP by a 2013 target.

"For 2011, Spain will need to specify concrete measures of about 1.75 percent of GDP to reach the deficit target of six percent in 2011," the EU's economic and monetary affairs commissioner Olli Rehn said in Strasbourg, France, at the European parliament.

So far Spain's deficit busting measures for next year only amount to 1.00 percent of output, according to Rehn's spokesman.

"Extra measures" need to be "specified in the 2011 budget," he stressed.

Spain was one of 12 countries, including Portugal, whose existing deficit reduction plans were considered, and broadly approved, by the EU Commission.

But while officials had already said they expected Spain to require additional measures in 2012 and 2013, Brussels now wants fresh action in Madrid when its budget is announced in mid-September.

Last month, the Spanish parliament, by a single vote, approved plans to slash 15 billion euros of spending (18.5 billion dollars) in an extended austerity plan covering this year and next.

That came on top of 50 billion euros of radical cuts already announced in January, plus pension and job market reforms, the latter due to be approved by the Spanish government on Wednesday.

The commission's stance, however, will likely increase intense scrutiny on capital markets after Spain's public deficit soared to 11.2 percent of GDP in 2009, the third-highest level in the eurozone after Greece and Ireland.

Investors are demanding ever higher interest payments in return for providing fresh cash, and banks' funding is also drying up according to experts.

Group of Seven finance ministers fear that problems with Spain's economy in particular -- Europe's fifth largest, with its banks heavily involved in Latin America -- could undermine global recovery.

"We are all concerned ... with the need for certain vulnerable European economies to act quickly to fiscally consolidate," Canadian Finance Minister Jim Flaherty said on Monday.

A string of leading EU figures have had to deny persistent reports that Spain is preparing to tap an EU emergency fund of 500 billion euros of loans and guarantees.

Spain "is working to ensure that these rumours remain unfounded, as is currently the case," Spanish Economy and Budget Minister Carlos Ocana said.

German Chancellor Angela Merkel said in Berlin late on Monday that "Spain, or any country, knows that it can make use of this mechanism at any time, if necessary," subject to conditions being thrashed out as was the case with Greece in a separate bailout.

Ten countries were given the all-clear under existing austerity drives including France, Germany and Italy, which have all recently announced new cuts of their own, as well as Austria, Belgium, the Czech Republic, Ireland, the Netherlands, Slovakia and Slovenia.

Portugal, for its part, has pledged to cut its public deficit this year to 7.3 percent, rather than 8.3 percent as initially planned. However the commission said that "further corrective measures should be included," next year.

Britain should have been the 13th EU member state to come up for inspection but with the new government having slated an emergency budget for June 22, its review was put back.

Two days from a summit of EU leaders dominated by their response to Europe's debt crisis, the commission meanwhile recommended opening excessive deficit procedures on three additional countries -- Cyprus, Denmark and Finland -- in moves to be agreed formally by EU finance ministers on July 13. Bulgaria is likely to follow.