FrontPage Magazine/ by Arnold Ahlert
The socialist-inspired traveling circus more commonly known as the EU
debt crisis is moving from Greece to Spain. Last Friday, Spanish Prime
Minister Mariano Rajoy announced that
a deepening recession in that country would make it impossible to meet
the EU-mandated deficit reduction target of 4.4 percent of GDP for
FY2012. He proposed a target of 5.8 percent instead. The latest
“readjustment” is similar to the one that occurred in 2011, when Spain’s
target of 6 percent gave way to the reality of 8.5 percent. Ironically,
Rajoy made his announcement on the same day 25 European leaders signed a
fiscal pact–aimed at strengthening budgetary discipline among its
member nations.
Yet it is the choice between budgetary discipline that would require
previously prepared sanctions against Spain, or once again making them
an exception to those rules that reveals the
EU’s Catch 22 dilemma: new sanctions would undoubtedly induce further
unrest in a nation already beset by a 22.85% unemployment rate and an
economy that has contracted economy by 0.3% on a year over year basis.
On the other hand, another exemption to supposedly rigid budget rules
would likely undermine confidence in the EU’s overall recovery plans, as
yet another incarnation of ”too big to fail” would be playing itself
out on the world stage.
The actual numbers are daunting. In
2011, Spain’s national and state governments spent $120.72 billion more
than they took in during 2011. This is only a modest reduction compared
to the $129.75 billion budget deficits the country ran in 2010,
underscoring the reality that austerity measures imposed on that nation
have yielded precious little in the way of genuine savings. Adding to
the uncertainty is the fact that two-thirds of the current shortfall was
accrued by the nation’s regional–and autonomous–governments. Absent the
ability to compel regional governments to fall in line, the idea that
Spain’s national government can meet fiscal targets imposed by the EU
appears dubious at best.
Yet if the EU insists that Spain adhere to the promises it made on
December 30th, an additional $33 billion of deficit reduction must be
found on top of the $19.8 billion in savings already accrued from a
combination of $11.9 billion in spending cuts, and $7.9 billion in tax
increases. That number represents a staggering increase of 167 percent
of additional austerity measures imposed only two months after the
original pledge. In addition, Spanish economic output will fall 1.7
percent this year, making a mockery of the 1 percent drop recently
forecast by the EU, along with the 1.5 percent predicted by the Bank of
Spain only two weeks ago. And unemployment is now expected to hit a mind-boggling 24.3 percent in 2012.
Rajoy insists that Spain remains within the proposed EU guidelines
because it intends to meet the public deficit goal of 3 percent of GDP
by 2013. Yet it reportedly rankled many EU leaders when the Prime
Minister publicly announced his intentions without first holding private
negotiations with the European Commission. Last November, the European
Commission demanded the
power to override budgets enacted by individual EU nations, and its
members are no doubt irked by Rajoy’s characterization of his failure to
meet the 2012 guidelines as a “sovereign decision by Spain.”
An official not authorized to discuss the issue described the move as
reflective of Rajoy’s political inexperience. “He thinks that most of
the people around the table are political allies who will support him,”
the official said. “But here you put your political considerations away
because the dynamic that counts is that of national interests.” More »
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