Even though it has not publicly said so, the Spanish government has assumed that its deficit/GDP ratio will exceed 6.3% for the year and a total of 7% difference between what they promised to achieve and their results.
This means that in order to avoid the 7% imbalance, Rajoy needs to make around 7 billion euros in emergency cutbacks between now and the end of the year. It doesn't look like he has any plans of doing that, nor the time to make them if he wanted to, but it is clear that retirees won't get paid in December because of inflation. The government needs to provide the EU some explanations, ask for flexibility and demonstrate that it has done everything asked of it.
The EU doesn't like the idea, and it will try to pressure Rajoy into giving it control of Spain's social security and regional government accounts, but Spain is counting on the EU not asking for additional measures to be taken. Among other reasons, because Spain has applied the majority of the measures that the EU has asked it to carry out to date, including the 70% VAT increase. But even this tax increase will not allow Spain to increase tax revenues enough to meet its deficit goal.
It seems that the government has run out of ways to make money. Growth continues to flag and the tax system needs a major overhaul. Further, resorting to raising taxes only exacerbates the problem. Rajoy's teams will try to persuade the EU that the 6.3% goal was designed for a more favorable economic climate and that Spain is not the only country to not meet its deficit objective. Practically all other euro zone
2012 could have been an exception, but once again the date to meet budget has been pushed back and public sector reforms are still pending. But they must happen now.
