Brussels is to allow Spain to miss its deficit targets for this year and next, declaring that Madrid has enacted sufficient economic reforms in the clearest sign yet that the European Commission is softening its austerity-focused response to the crisis.

Olli Rehn, EU economic commissioner, yesterday declined to set new budget targets for Spain and gave the country a clean bill of health based on the structural reforms unveiled by Madrid in its budget in September.

The decision sends a strong signal that the commission is moving closer to the International Monetary Fund’s view of the crisis, which envisages more flexibility for struggling countries such as Greece, where fixed deficit targets have forced drastic budget cuts even during deep recessions.