THE EUROZONE’S finance ministers have encouraged Spain to dig deeper in making budget cuts for 2012, reducing the budget deficit by several billion euro more than originally planned – while at the same time offering a concession that Spain can make lesser budget cuts than first agreed.

At a summit in Brussels last night, the ministers said Spain’s budget targets for this year – which had planned to keep the government deficit to within 5.8 per cent of GDP – would not be enough to ensure a “timely correction of the excessive deficit”.

The ministers have now urged that the deficit be reduced by a further 0.5 per cent, bringing the total deficit to 5.3 per cent – meaning approximately €7 billion more in budgetary adjustments.

The suggestion is seen as a compromise after Mariano Rajoy’s original budget plans drew the wrath of Brussels for flouting the 4.4 per cent figure that had originally been agreed by both sides as part of Spain’s programme to reduce its budget deficits.

The move means the Spanish budget for this year will require significantly less austere measures, having to cut less spending and raise fewer taxes, though the measures will still be required for next year.

In exchange, Spain reaffirmed its commitment to bring the deficit within 3 per cent of GDP by 2013, in line with the previously agreed EU targets – copper-fastening an agreement that the postponed austerity measures will continue

Aside from the suggestion that Spain pursue further budget cuts, the Eurogroup has also urged Spain to pursue the “early adoption and strict implementation” of a debt brake similar to that required by the fiscal compact.

In their statement, the ministers said Spain had agreed to consider this as a further compromise measure.

Markets have offered a quiet welcome to the deal, with the cost of borrowing for the Spanish government falling modestly. The government would now pay just over 5 per cent for a 10-year loan – down from close to 7 per cent late last year.