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Friday, March 01, 2013

How does our prediction on Spanish regions' deficit stand up?

Last July, we put together this 'traffic light table' of Spanish regions, based on how much each region had to cut its deficit by in order to meet the 2012 overall target of 1.5% of GDP (click to enlarge):
The official deficit figures for Spanish regions were published yesterday, so let's see how our table stands up. Unsurprisingly, Spanish regions have missed their overall target, but by a lower than expected margin. The final figure for 2012 is 1.73% of GDP - only 0.23% above the target.

Five regions have missed their individual targets (well, six if you want to include Castilla-La Mancha, which is on 1.53%, but that may be a bit harsh given that they have achieved an adjustment of close to 5.8%). Three of them (Murcia, Comunidad Valenciana and Balearic Islands) are in the 'red' region of our table. The remaining two (Catalonia and Andalusia) top the 'amber' region.

Credit where credit is due (and we're not just talking about the accuracy of our prediction). Some regions have managed to achieve a very substantial deficit reduction to meet their targets. Think of Castilla-La Mancha or Extremadura, for instance, which started from 7.31% and 4.59% respectively. However, the fact that the country's two most populous regions - Andalusia and Catalonia - remain among the most undisciplined despite receiving billions from the Spanish government's dedicated bailout fund is clearly a source of concern for Mariano Rajoy's government. 


Anonymous said...

I have not visited Spain since May 2012 but to me these initial numbers look way too good too be true.

Rik said...

A lot will have been accounted for on cashbasis. You can first see if it works and with how much after all the air of extending things is out of it. Spain itself is close to that point, regions simply seem to have a lot more room left.

jon livesey said...

More terrific news, as the euro-zone continues to "solve its problems." Bankia, the nationalized Spanish Banks just reported an annual loss of E19.2bn, mostly from defaulting real estate loans.

There shouldn’t be any surprise here. When Spain entered the euro, interest rates fell dramatically. But when you have a semi-developed economy and a very poor post-secondary education system, you lack the technicians and managers who could put that cheap investment credit to good use, so you build houses with it instead, since house-building roughly matches the skill set of your labour force.

And then, if cheap credit is all that is driving the building of houses, no-one does any good market research, so inevitably you build houses for a market that doesn’t exist. There never were any million eager house buyers itching to buy a house in Spain, even in the good times.

And the next thing you discover is the difference between a house price bubble and a house building bubble. When individuals buy houses in a bubble, and the bubble collapses, the really unwise buyers default early, and the rest make an effort to keep making their payments. So the US and UK saw their problems early on, and today mortgage backed securities have become sound investments again. I own some myself.

In Spain, on the other hand, the houses remain unsold, the credit is owed by developers, Spain’s laws allowed bad debts to sit unrecognized for years, and now it is finally catching up with them and it’s yet another thing for the taxpayer to deal with.

Meanwhile Spain’s Banks overall owe about E400bn to the EuroSystem, via the Bank of Spain and Target2.

Blanco said...

I am Catalan and I resent that you say "that Catalonia has not discipline" . If Catalonia received what would have been paid to a + 6%. But other regions, such as Galicia and Extremadura have a deficit of 9% and 22.5% respectively. The problem is the concept of government in areas that they can not be managed.