STOCK MARKET WATCH - Friday, 27 January 2012

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52. Merkel praises Rajoy's austerity but deficit flexibility is ignored

http://www.elpais.com/articulo/english/Merkel/praises/Rajoy/s/austerity/but/deficit/flexibility/is/ignored/elpepueng/20120126elpeng_20/Ten

German Chancellor Angela Merkel praised Spanish Prime Minister Mariano Rajoy's austerity drive Thursday, saying after meeting with him in Berlin that she has "great respect" for his government's efforts to cut the country's budget deficit and tackle sky-high unemployment.

Rajoy traveled to the German capital ahead of the European Union summit on Monday to convince Merkel that he was able to deal with Spain's economic problems. "We have great respect for \[Spain's drive\]," Merkel said. "Sometimes these are steps that are not easy to take, and we wish him a lot of luck."

Rajoy was expected to press the German chancellor into giving Spain some breathing room in bringing down the country's deficit, which was at eight percent of GDP at the end of 2011, to the official target of 4.4 percent by the end of the year, implicating about 40 billion euros in public spending cuts in the middle of a recession.

"The government of Spain is committed to reducing its deficit," Rajoy said. "I am absolutely convinced that one cannot spend more than what one needs." The Popular Party prime minister has pledged to cut the country's deficit to meet the target.