Not good enough

10 May 2010 By Fiona Maharg-Bravo

A surge in the stock market and shrinking debt yields could lull the governments into a false sense of security. But the need to cut their deficits is still urgent. Plans to speed up fiscal consolidation are a start, but they need to be accompanied by structural reform.

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Spain's economy minister, Elena Salgado, said Spain did not intend to draw on the new debt rescue package agreed by European Union policymakers on May 9.

She said Spain would cut its budget deficit by 0.5 percent of GDP this year and 1 percent next year for a total of 15 billion euros ($20.13 billion) by 2011. This would reduce the budget deficit to 9.3 percent in 2010 and 6.5 percent in 2011. Salgado explained that the cuts were "not additional" to the consolidation already foreseen for 20102013, but that it meant bringing the effort forward to the first two years.

Salgado announced that Spain will present its specific measures on 18 May in a new Ecofin meeting. Jose Luis Rodríguez Zapatero, the Spanish prime minister, is expected to explain the details on Wednesday in Spain's parliament.

The Spanish stock market rose as much as 13 percent on Monday morning. The yields on Spanish 10year bonds declined 46 basis points to 4.04 percent.

Meanwhile, Portugal also said it would increase its efforts at fiscal adjustment. Over the weekend, the government had already promised Brussels it would cut this year's deficit by an additional 1 percentage point to 7.3 percent of GDP.

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