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Madrid • Amid the uncertainty over Spain's political future after Sunday's inconclusive election result, one thing is clear: the country's budget-deficit targets are at risk.
Three of the four biggest parties in the new parliament promised voters they'd persuade the European Commission to ease Spain's budget limits during the campaign. The fourth, Prime Minister Mariano Rajoy's People's Party, insists it will meet the goals, though it's missed them every year since taking office in 2011 and the commission says its 2016 budget will overshoot again by more than $8.7 billion.
Despite Rajoy's budget struggles, Spain has been cheered by European leaders including Chancellor Angela Merkel for taking the economic medicine prescribed by officials in Brussels as it tried to dig itself out of a six-year slump.
Now Spain, the euro area's fourth biggest economy, could tip the bloc's focus away from fiscal consolidation with France and Italy also chafing at the commission's restrictions.
"There is agreement whether official or unspoken on a slower path of fiscal adjustment," said Ruben Segura-Cayuela, a London-based economist at Bank of America Merrill Lynch. "This is not 2012 anymore, and the EU is more flexible as soon as you show reforms, as Italy and France, at least to some extent, are doing."
Spain's 10-year bonds fell, with the yield adding 9 basis points to 1.78 percent. In early trading it rose as high as 1.88 percent in early trading, the highest in five weeks.
A Socialist-led government may seek to review Spain's budget-deficit targets once the accounts for 2015 have been completed but will work hand-in-hand with the European Commission in that process, the party's economic adviser Jordi Sevilla said in an interview in October.
Pro-market Ciudadanos proposes offering the Commission more reforms, such as abolishing a provincial layer of government, in exchange for a slower pace of consolidation. Anti-austerity Podemos wants to renegotiate Spain's spending plans for the next four years.
"A dramatic change is expected on the public-deficit issue," Geoffrey Minne, an economist at ING Bank in Brussels, said in email.
Rajoy attempted to sidestep the Commission's budget oversight timetable by submitting a draft budget plan ahead of the deadline, only to have the commission ask for revisions by January.
Last month, the Brussels-based Commission said Rajoy's spending plans will lead to a deficit of 3.6 percent of output next year compared with a target of 2.8 percent. Spain will miss this year's goal of 4.2 percent too, the Commission said.
Neighboring Portugal took the opposite tack, opting to withhold its budget plan until after its elections in October. The new government has now said it will submit a plan in January for review the following month.
France, meanwhile, has continually postponed cutting its overall debt levels and bringing its annual deficit in line with the EU limits.
President Francois Hollande won another two-year extension in February that allowed his nation to avoid unprecedented sanctions for breaking the euro area's budget rules.
But the near-term focus is Spain, as European officials try to show that the euro area's budget commitments can transcend changes in national leadership. EU Economic Affairs Commissioner Pierre Moscovici said Dec. 9 that Portugal's new government has reassuringly committed "to respect their own commitments" on fiscal matters and will submit budget plans "as soon as possible" in January.
"For Spain, now we'll see what the voters will decide," Moscovici told reporters in Brussels. "But obviously we'll have to discuss the Spanish budget with the new government after the election."