March 13th, 2012
Econintersect: While the world waits for Greece to bleed out from debilitating austerity measures, the gun sights are turning to Spain. On Monday Spain agreed to accede to EU (European Union) finance ministers demands for further cuts in its large budget deficit. Spain had proposed to delay further cuts until 2013 and run a budget deficit of 5.8% of GDP in 2012. The EU finance ministers had demanded nothing larger than 4.4% deficit in 2012 and 3% in 2013. The new demands, to which the Spanish government has agreed, is to reduce the 2012 shortfall by 0.5% or cut the budget to achieve a deficit of 5.3% of GDP. Under the old budget (5.8% deficit) Spain had said it would meet the 3% target in 2013. Presumably the 3% deficit limit is still committed by Spain for next year. (Click on graphic for larger picture of Spain's battle.)
Follow up:In 2011 Spain closed the year with a deficit 8.5% of GDP, far above the target of 6%. In the elections in November the conservative Popular Party (PP) ousted the Socialist Party after seven years of rule. The PP ran on an austerity platform and achieved a clear majority in the lower house of parliament.
It remains to be seen how the country will react to the reality of austerity, with the unemployment rate over 22% and expected to go higher. Both Spain and Greece are running unemployment rates for the under-25 population in excess of 50%, more than double the EU average. Both countries have reported data only as of December so the further cuts so far in 2012 are not reflected in the numbers. And of course what will transpire throughout the rest of the year can only be guessed as the deepening austerity spreads through what’s left of these economies.
- Spain Agrees to a Further Deficit Reduction (James Kanter, The New York Times, 12 March 2012)
- Eurozone okays Greek aid, demands deeper Sapanish deficit cut (John O’Donnell and Jan Strupczewski, Reuters, 12 March 2012)
- Spain’s Conservatives Establish Control (GEI News, 21 November 2011)
- Spain unemployment tops 5.3m and set to get worse (Giles Tremlett, The Guardian, 27 January 2012)
- Greek youth unemployment hits 51.5pc (Louisa Peacock, The Telegraph, 08 March 2012)
- Spain’s lost generation; youth unemployment surges above 50 per cent (Fiona Govan, The Telegraph, 27 January 2012)
Articles on the on-going austerity push by the EU can be found on Econintersect Europe newspaper page.
Hat tip to Roger Erickson.