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Tuesday, January 22, 2013

Spain back under the spotlight soon?

We haven't blogged on Spain for a bit, but a couple of interesting developments have caught our attention today. Spain will presumably disclose its final deficit figure for 2012 shortly, and everything seems to suggest that Madrid will let its eurozone partners down once again.

Spanish Industry Minister José Manuel Soria (pictured) told a conference this morning that Spain's public deficit for 2012 will be somewhere around 7% of GDP - higher than the target of 6.3% of GDP agreed with the European Commission.

It is also probably not just a coincidence that Soria's words came just before the European Commission put out its latest update on Spain's compliance with the conditions attached to its bank bailout. The content of the report was not entirely new to us (and the readers of our daily press summary), given that a draft was leaked to El País last week. The document reads,  
Fiscal consolidation advanced in the third quarter, but the 2012 deficit target will likely be missed.
Most importantly, it adds,
The 2012 deficit target for the regions of 1.5% of GDP can...still be within reach for the regional level as a whole, but risks are substantial and a number of regions will most likely exceed their target.
You won't hear us say this very often, but well done to the European Commission for making the right prediction. Of course, we (and others) warned of the risk of several Comunidades Autónomas overshooting their deficit target as early as last July.

Anyway, Catalonia (Spain's wealthiest region) has just announced that its deficit at the end of 2012 stood at 2.3% of GDP - with the overall target for Spanish regions fixed at 1.5% of GDP. With the wealthiest region missing its targets, and few others likely to undershoot theirs to pick up the slack, it seems unlikely that the overall target will be met.

A day of bad news for Spanish Prime Minister Mariano Rajoy and his government - not least because Spain had already obtained a relaxation of its deficit target for this year. The risk is that, once the official deficit figures come out, Spain could face fresh pressure from the markets. Before complaining about being "underrepresented" in the EU institutions (see Spanish Economy Minister Luis de Guindos remarks from this morning), the Spanish government should probably do more to regain its credibility vis-à-vis its eurozone partners. Top EU/eurozone jobs would surely follow.

2 comments:

Rik said...

You didnot mention the corruption scandal.
Problem being that the people in the South might be used to it, but the people in the North are not. Transferring money becomes this way more and more difficult to get approved up North.

jon livesey said...

To me, the worst aspect of this is not Spain missing its end of year deficit target, but the fact that it revised the target so many times during the year.

The original goal for 2012 was 4.4%, but in March, Rajoy announced that it would now be 5.8%. that number was subsequently adjust upwards to 6%, then 6.3%.

Then the half year actual deficit was announced as 4.77%, meaning that it would have to drop sharply in the second half of the year to reach a 6.3% annual rate.

What this says to me is that not only does Spain miss its targets, but it has difficulty in establishing what the targets should be.

That in turn makes the 2013 target of 4.5% into anyone's guess.