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Spain leads Europe's rebellion against German austerity

Prime Minister Mario Rajoy told EU officials that Spain would not meet its deficit target for 2012. Other countries, struggling to avoid further recession, may follow suit. 

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Italy is increasingly balking at reforms. And even Germans and the Dutch are demanding more growth-oriented policies from their governments, even if they balk at more bailouts for their southern neighbors. 

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“Spain is like the canary in the coal mine,” said José Ignacio Torreblanca, a senior policy fellow of the European Council on Foreign Relations. “It’s trying to avoid an either/or choice between austerity and stimulus.”

Until now, peripheral countries have had little choice but to accept austerity, not only because it was necessary, but because it was the only way to convince a German-led northern Europe to bail out Greece, Ireland, and Portugal to avert a wide meltdown of the eurozone.

But rising violent protests, unemployment, and poverty levels are swinging the debate to the national level as European governments recalculate the political fallout. Governments are under increasing pressure to seek more growth driven policies, even if it means less ambitious deficit targets.

On Friday, Spain’s biggest unions called for the first national strike against Rajoy on March 29, citing the government’s unwillingness to negotiate its economic reforms, especially the labor reforms enforced in February that make layoffs less costly and quicker and allows employers to lower salaries.

“Spain is saying Europe needs both. Austerity is a market condition, but it’s not the only one,” Mr. Torreblanca said. “This is the time to start talking about what comes after austerity.”

And there is a powerful precedent. “In 2003 it was Germany and France who asked the EU for more flexibility to meet its deficit,” Torreblanca said. “Germany is going to have to accept that this is just as good as it gets.”

Here, it's not about debt

Today the EU Commission acknowledged it sent delegates to Spain this week to review its deficit data, ahead of the government budget presentation late this month. Only then will the EU decide whether to seek penalties for failing to meet the deficit target.

When Rajoy came to power in December, he said the deficit was 8.5 percent, a serious deviation from the target set in 2009 of 6 percent that the new government has mostly blamed on overspending by regional governments with great autonomy over budgets. 

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