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THE EURO ZONE

The waiting game

When the EU removed Spain from its Excessive Debt Procedure (EDP) at the beginning of this month, it thereby deemed the country to be economically sound after a decade of hardship. But Brussels still has a wary eye on what's happening over here, and is expecting some demanding fiscal targets to be met over the next couple of years.

Pierre Moscovici, chief of the EU Commission, must therefore be wondering when Spain's next government will be installed and whether it will be able to meet his budgetary requirements. "We're aware of the difficulties that remain," Moscovici said when he announced Spain's removal from the EDP. He was thinking about unemployment, but there's now also the possibility of a prolonged governmental vacuum to factor in: following the general election of April 28th, the country's main parties have yet to form a new administration.

The previous Socialist government of Pedro Sánchez did well in meeting EU targets, despite its minority status in congress. Last year, Spain's budget deficit was 2.8% of GDP, the first time that it had been brought under the Brussels-imposed limit of 3% since 2007. For all its claims to economic prowess, the preceding Conservative administration of Mariano Rajoy didn't meet that target once during its six-and-a-half years in power. The EU's removal of Spain from the EDP (a system to which it was committed in 2009, when its deficit was 4.4% of GDP) constituted a vote of confidence in Sánchez's government, which presided over economic growth of 2.6% last year.

Bolstered by the presence of economy minister Nadia Calviño, former budget director at the EU Commission, a Sánchez-led minority administration would likely continue that track record. But if the PSOE teamed up with radical-left Unidos Podemos (UP) - a partnership that is currently being discussed by Sánchez and UP leader Pablo Iglesias - pleasing Brussels would become more difficult: the Socialists would be under pressure to increase public spending beyond levels that they're comfortable with, thus making it harder to satisfy EU targets. Chief among those are the budget deficit and debt-to-GDP ratios, both of which Moscovici wants substantially reduced. The latter currently stands at 97.1%, although the target figure is below 60%.

A Socialist-UP coalition is still a long way from becoming reality, though, as talks between Sánchez and Iglesias are in danger of stalling. Iglesias wants UP members to have full cabinet positions in the next government, a request that Sánchez is reluctant to satisfy. If the negotiations fail there is every possibility that Spaniards will be asked to go to the polls again, meaning Spain will be waiting even longer for its next government. Brussels will also be waiting, hopeful that the next administration proves as EU-friendly as the last one.