N will be allowed to break the terms of the new fiscal compact, it was announced last night, as Eurozone peer Italy officially sank into recession.
Spanish Prime Minister Mariano Rajoy (pictured) successfully persuaded the other Eurozone leaders at the Eurogroup that it is only missing its deficit targets because the country is mired in an unexpectedly deep recession, not because the government lacks conviction.
This year’s deficit is currently expected to come in at 5.8 per cent of GDP, well above the European Commission-agreed 4.4 per cent.
Last night, the Eurogroup welcomed Spain’s “commitment... to meet the 2013 deadline for the correction of the excessive deficit” and urged Rajoy to press on with the 2012 austerity budget and reforms.
Meanwhile, figures showed that Italy’s economy shrank 0.7 per cent in the fourth quarter of 2011, following a 0.2 per cent decline in gross domestic product in the third quarter.
Leader Mario Monti, who rushed through a €33bn (£27.8bn) austerity plan in December and is now working on reforms to boost growth, is due to meet German Chancellor Angela Merkel today.
Germany’s economy contracted by 0.2 per cent in the fourth quarter, but analysts are expecting Europe’s largest economy to pick up steam again this year, while Italy lags.