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THE EURO ZONE

Expecting the worst

In the first economic report it has released since Americans voted for Donald Trump last November, the EU Commission states that the soon-to-be-27 member bloc is "assailed by risks" and faces "large uncertainties". The threats posed to the EU's economic stability, it says, are the political events that defined last year: Brexit and Trump's election victory.

Furthermore, Mariano Rajoy's assurances that he is doing all he can to reduce Spain's budget deficit seem to have gone unheeded: the Commission is now prediciting that the country's deficit will be 3.5% of GDP this year, as opposed to the 3.3% it predicted in January and the goal of 3.1% (which itself is still higher than the limit of 3% that supposedly applies to all EU members).

This might seem like a tiny adjustment, but it equates to about four billion euros. And it comes just a couple of weeks after Rajoy's minority government announced that 2017 would be a record tax year: revenues are expected to be around 202.6 billion euros, said the Ministry of Finance at the beginning of this month. If achieved, that would mean an increase of 7.8% compared to 2016. Yet Pierre Moscovici, head of the EU Commission, remains unsatisfied that Spain's deficit-reduction targets will be met.

Moscovici is not without reason to be sceptical when it comes to Spain's fiscal promises. The Spanish government has missed Brussels' deficit-reduction targets every year that Rajoy has been in power. Even though the Finance Department is expecting a tax bonanza this year, Spain's 2017 budget wasn't approved by the EU until about four weeks ago - a delay of months attributable to last year's farcical political deadlock. When combined with the general economic uncertainty that the Commission predicts will stem from Brexit and Trump's presidency, a downgrade in Spain's deficit forecast was virtually inevitable. But the rate at which the EU changes its various economic predictions, the current forecast probably won't be in circulation too long.

Such fluctuation is not just limited to the EU Commission, nor indeed does it solely concern Spain. Part of the problem is that various economic bodies and research teams are having to backtrack on forecasts made when they thought that Brexit and a Trump victory would plunge the world into crisis and despair. Granted, Brexit hasn't even started to happen yet - but its certainty in the medium-term future has failed to cause the economic backlash many predicted. The Bank of England, the IMF and the OECD have also recently made similar revisions to reports orginally penned in the expectation of Brexit and Trump-induced chaos. While Spain has some serious work to do over the next two years to keep Brussels happy, these two factors may not hinder its efforts as much as the EU Commission predicts.