Spanish government doubts it can achieve deficit target
I have been saying for a few months now that all of the periphery would miss their targets as depression took hold. However, the language in the October 2011 EU summit agreement is unforgiving for Portugal and Ireland:
We invite both countries to keep up their efforts, to stick to the agreed targets and stand ready to take any additional measure required to reach those targets.
Here’s how I put it in October:
Translation: continue fiscal austerity until you reduce your deficits significantly. If the depression this creates causes you to miss your fiscal targets, redouble your efforts under the watchful eye of the Troika.
Portugal is out making additional cuts and increasing taxes (link in Spanish). Nevertheless, Olli Rehn has already indicated that Portugal runs the risk of not making its 2011 fiscal targets (link in Portuguese). Even Spain, not under an IMF program, will miss fiscal targets.
So, it is only a matter of time before what is happening in Greece happens at a minimum in Portugal and probably in Ireland as well. How will the Portuguese react?
I think Ireland is the model here. But Spain comes second. If these countries can’t make their targets, it tells you that the austerity and drip, drip monetisation approach will ultimately prove anti-growth.
Belgian newspaper De Standaard reports that the new Spanish government is fearful. My translation from Dutch below:
The new Spanish government of conservative Prime Minister Mariano Rajoy has expressed doubts about the feasibility of its budget target for the first time. It is based on outdated growth assumptions, it is said.
Spain agreed with the European Commission to reduce the budget deficit this year to 4.4 percent. But that target is based on the outdated growth prospects of the former Socialist government of José Luis Zapatero said Spanish Finance Minister Cristobal Montoro.
The Zapatero government assumed economic growth of 2.3 percent for this year. The International Monetary Fund (IMF) expects from Spain, however, a negative growth of 1.7 percent for this year and 0.3 percent for 2013.
Yet according to Montoro, Spain will maintain its objective of reducing the deficit as quickly as possible to under three percent.
The Spanish government will therefore among other things force heavily indebted autonomous regions to enforce budgetary discipline. They now have to present their budget proposals to the Government for approval.
The Rajoy government put forth a good week after taking office in late December it’s first austerity package. It wants to reduce spending during the first quarter of this year by 8.9 billion and plans to increase taxes to bring in some 6.2 billion euros more.
Notice Rajoy’s government did not say specifically it believes it will make this year’s target. I don’t think the Spanish will be able to get it done. Let’s see how this unfolds.
Source: Spanje twijfelt aan begrotingsdoelstelling – De Standaard
Expected, and austerity measures are not going to fly in an economy of 23% unemployment
Thanks for the report. We will be in Spain on a business trip a next week – we are planning on making a purchasing spree so hopefully we will do our bit to bring some money into that beautiful country.-) What we would need that our country takes on the Euro as our currency is too week at this point and its hard on the importers.
weak not week – sorry…-)
Rajoy is going to redouble the cutting efforts too. It doesn’t look good I fear.
I really feel for them as I have a sort of strong emotional attachment to that country probably becasue I have experienced many nice things there. And I also like the people.
Same here. I am more annoyed with the politicians who are more interested in staying in power than what they do to their citizens. This is hardly news. This was expected months ago by those who were not so enamoured by neoliberal policies. The only real question is when will they collapse? Ireland is collapsing quietly with massive emigration. It is the same for a number of eastern european countries. These migrations will leave the debts to be paid for a smaller more aged population. Hardly a prospect for success.
Rajoy is delaying tougher measures to reduce deficit till the local elections in Andalucia are held in march in order to get for first time the bastion of the socialist party and kick them away for many years to come. However the picture for the spanish economy is really hard having to create lost jobs in construction and services in other sectors where it maybe not be very competitive. More than investing in infrastructure , countries should be investing in education to allow them to reinsert in new occupations.
Assumed growth of 2.3% versus projected of -1.7%…ouch.
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