Finance ministers have allowed Spain to inflate its 2012 public deficit to 5.3 percent of gross domestic product (GDP) -- a sum higher than the original target but lower than what Madrid was asking for, eurozone chief Jean-Claude Juncker said on Monday.
Spain was originally meant to bring its deficit down to 4.4 percent of GDP this year, but Spanish Prime Minister Mariano Rajoy said at a European Union summit last month that Madrid would instead aim for 5.8 percent of GDP.
"The figure announced previously by the Spanish government, the figure of 5.8 percent, is dead," Juncker said.
"What is far more important is the figure of 3.0 percent by the end of 2013," he added.
"The Eurogroup assesses that the timely correction of the excessive deficit should be ensured by an additional frontloaded effort of the order of 0.5 percent of GDP," below the 5.8 percent, Juncker said after eurozone talks.
Spain's deficit is roughly the size of Portugal's bailout after overspending last year amounted to 90 billion euros ($120 billion). Spanish Prime Minister Mariano Rajoy says budget slippage this year will be almost as high.
"I didn't expect a decision on the 2012 budget of Spain," he told a news conference. "Now we have agreement," he added, terming it "a quite important decision" by the ministers.
Asked about the scale of the budgetary slippage in Spain, at a time when the Netherlands is also trying to find 10-17 billion euros to keep its public budget on track, Juncker said: "We are not easing" on the rules governing EU budgetary constraints.
A statement said only that "the Spanish government expressed its readiness to consider this" as it finalises new budget proposals due by next month.
Spain must nevertheless, the Eurogroup said, ensure its public deficit falls to 3.0 percent of GDP by the end of 2013, as was always the plan.
Normally, the failure to meet existing Brussels deadlines for deficit and debt reduction would result in a large fine under new eurozone laws and European Union principles.
Juncker said a new wave of austerity in Spain, where unemployment in running well above one in five adults and almost every second person aged under 25, would be accompanied by structural reforms, notably its labour market, and said all levels of Spanish government would have to play their part.
EU economy commissioner Olli Rehn said Madrid had to deliver "a credible and convincing path of fiscal consolidation over the coming two years," which would "run in parallel with economic reforms that can bring sustainable growth and better jobs in Spain."