Spain's shrinking deficit bolsters consumer confidence

Spain's efforts to shrink the euro region's third-biggest budget deficit may be succeeding, easing investor concern that the cost of bolstering the country's savings banks will swell the public-debt burden.

Spain publishes as soon as this week the central government's deficit for last year, which accounts for the bulk of the nation's overall shortfall. The deficit fell 46 percent in the first 11 months of 2010, though December is the biggest month for spending. By contrast, Portugal's central government shortfall widened.

"These figures show the efforts by the government are bearing fruit and generally will continue to do so," said Luigi Speranza, an economist at BNP Paribas SA in London. "You can see the difference with Portugal, where developments in the fiscal balance in general will be less successful."

Spain's public finances face an additional burden as Prime Minister Jose Luis Rodriguez Zapatero puts pressure on struggling savings banks, or cajas, to bolster their capital. He has pledged to make public funds available to help the lenders. Spain's debt at 64 percent of gross domestic product was lower in 2010 than that of France and Germany, leaving the government with fiscal wiggle room to raise funds for those lenders.