Spain's government faces a crisis of confidence from nervous investors after admitting late on Friday its 2011 public deficit was higher than it had previously reported due to adjusted accounts in three of its regions. Spain revised its 2011 public deficit to 8.9 percent of gross domestic product from a previous 8.5 percent of GDP, a figure which was already sharply higher than the original target of 6 percent of GDP. The three offending regions, Valencia, Madrid and Castilla y Leon, are all governed by the ruling People's Party, an embarrassment for Prime Minister Mariano Rajoy who has made much of the Socialist party's inability to control their accounts. "This is a major disaster ... and a serious hit for Spain's credibility. I wouldn't be surprised if we see a leap in risk premiums on Monday. The news left me cold when I saw it. The worst that could happen to us right now was something like this," Antonio Cabrales, economist at Madrid's Carlos III university, told Reuters. The yield Spain pays for its benchmark 10-year bonds has soared to six-month highs in the last week, close to levels considered unsustainable, amid concerns over its banking sector and talk that Greece may be forced to leave the euro zone. The government took control of the country's fourth largest bank Bankia, battered by bad loans in to the collapsed property sector, fuelling worries over the potential public cost of a banking sector clean up. Spain's economy has been in recession or stagnated ever since the burst of a housing bubble four years ago and despite forecasts GDP will contract by around 2 percent this year, it has made deep spending cuts to meet Europe-set deficit targets. The country will still meet the goals, the government said after presenting the revised data on Friday, but many economists say the slump means they are impossible to reach without condemning the economy to deeper downturn.
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