Spain's "Inverse Austerity" Leads To Multi-Year High Budget Deficit

Tyler Durden's picture

For a country that laments the imposition of draconian "austerity" measures, now allegedly in their third year, which have so far seen government revenues slide, while spending rises, Spain sure has a problem with figuring out how it is supposed to work. Yet while the world was shocked back in December 2011 when Spain quietly announced its budget deficit would jump from 6% to 8.5%, before finally settling on 8.9% of GDP, today's announcement that the 2012 Spanish deficit was a whopping 10.2% of 2012 GDP hardly caused any commotion. Apologists will quickly say that this budget gap was boosted by the 3.2% increase due to setting up the bad bank, and rolling bank bailouts, and of course they will be right: just as all those economists were right to say that when one excludes all the negatives, US Q4 GDP was in fact positive. Or, indeed, as Goldman said to ignore this week's negative initial claims and new housing starts data: after all they too were negative. In fact, when one excludes all the negative trading days in 2013, the stock market has not had a down day yet. As for Spain, too bad the country can't have its broke bank cake and eat the budget surplus that would result "if only" things were different.

From Bloomberg:

Rescuing lenders including Bankia SA (BKIA) added 3.2 percentage points to the budget gap last year while rising unemployment and falling asset prices crimped government income, the commission said today. The deficit will narrow to 6.7 percent of gross domestic product this year before growing in 2014 to 7.2 percent -- more than twice its 2.8 percent target -- as temporary austerity measures expire.


European Union Economic and Monetary Affairs Commissioner Olli Rehn will comment on the economic outlook at a Brussels news conference starting at 11 a.m. as Spain lobbies for more time to reorder its finances. The nation has missed all its deficit targets since overspending surged to 11.2 percent of GDP in 2009 after the end of a decade-long property-fueled boom.


Spain escaped a full bailout last year after the European Central Bank pledged to backstop the single currency, causing the yield on its 10-year benchmark bond to drop about 250 basis points from a euro-era high of 7.75 percent in July.


The commission also said “the budgetary performance in 2012 was blighted by considerable shortfalls of both indirect and direct tax revenues.”


The commission raised its budget-deficit forecasts from November, when it saw shortfalls of 6 percent and 6.4 percent for 2013 and 2014. European officials left unchanged their view that the Spanish economy will contract by 1.4 percent this year and forecast a 0.8 percent expansion in 2014. Unemployment will rise to 27 percent this year from 25 percent in 2012 and remain at that level in 2014, the commission said.

Further confirming Spain's confusion vis-a-vis just what "austerity" is, and how it is supposed to work was the debt:

Spain’s debt load more than doubled to 88 percent of GDP last year compared with its pre-crisis level. It will surge to 101 percent next year, according to the commission.

Here's the thing: in austerity debt goes down, not up, so can we please stop attributing to austerity what simple political malfeasance, kickbacks and outright criminality will explain any day?

Finally, Europe's response - give it more time to do the opposite of what it is supposed to be doing:

In July, euro finance chiefs gave Spain an extra year to bring the shortfall back within the European limit of 3 percent of GDP. The plan was to achieve 6.3 percent in 2012, 4.5 percent this year before complying with the rules in 2014.

So to summarize: do more of what has failed to work for the past three years, in fact encourage Spain to do so, pretend the country is cutting its deficit when it is in fact balooning it, and avoid all structural reforms. Surely this will end well in a time when the banks are supposedly repaying the ECB's excess trillions in liquidity (if at a far lower pace than originally expected). And when the ECB's house of cards support beneath the European bond market fails next, everyone will again be absolutely shocked to find that things are worse than ever before.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GetZeeGold's picture



Yeah we did it.....and we're pretty damn proud of it too.

fomcy's picture

8:20 AM again manipulation squad bastards, comeback in full force shorting Gold.

Sick bitchez...

F*cking SEC where are ya??? Watching porn?

hugovanderbubble's picture

Spanish Bad Bank has to increase Capital cos capital losses and lack of selling properties (specially land)


Its impossible to develop land in Spain. So Spain has to accept Debt HAIRCUTS in the sovereign and Subgovernment bonds- + Remember all the Scandal and fraud related to Covered bonds = CEDULAS HIPOTECARIAS - Without Liquidity cos the collateral is without valuation and transfer pricing. and THIS IS ONE OF THE BIGGEST CREDIT EVENT...

Remember also ; SPAIN GONNA BE DOWNGRADED TO JUNK...and whom gonna place more cash and collateral guarantees???? Mars...The Aliens???? Nobody has a penny in Spain and in the income generation and disposable income its unsustainable with : CURRENT POLITICAL CORRUPTION, Structural Unemployment and OVERLEVERAGE in all tranches : Families, Corporates/Specially SME´s and Government/Sovereign - 

Nobody is buying spanish Bonds in the 3-15 years tranch cos DEBT HAIRCUTS are inminent, cos this country is a freaking political corruption no matter the axis u vote. ALL ARE THE SAME- ALIBABA And the 40´s thieves,

LETS CRASH SPAIN, till the real value appears.

This is a biggest problem than the Subprime crisis, but in Europe.


SPANISH COVERED BONDS = next Black Swan in Bond Markets = Higher Volatility Coming Yes or Yes.


Please short Spanish Banks till Market Prices hits reality to mark to market and no where the State and Banks wants to hold them artificially.




Please Rajoy Resign, 


Let new people, new blood get the ride of the political stablishment. = NEW GENERATIONS, new ideas for a NEW SPAIN. = Time to Fight

EscapeKey's picture

You could pretty much have replaced "Spain" with "Greece" throughout that article, and the premise would still hold true.

I suppose the one difference would be that if the article was about Greece, it would have received the rubberstamp for extra truthiness by the IMF.

Voice_Of_Unreason's picture

You could also replace Spain with France and it would be pretty accurate. But then the French economy minister would have savaged you like a dead sheep.

Irelevant's picture

Bernanke will bail out: Greece, Spain, France, Hungary, Romania, Ukraine, Czech Republic, Slovakia, Poland, Germany, Portugal, Ireland, United Kingdom, Italy, Monaco, Andorra, The Vatican an so on.

Have no worries, when you print money out of thin air government debt is actually pretty irrelevant!

Navymugsy's picture

Don't forget Cyprus please. Thanks!

Notarocketscientist's picture

Of course he will.

When push comes to shove we will see more LTRO - because Germany will not allow unlimited printing because they know Ben will step up for them because we all go down the shitter if any country defaults

jubber's picture

IBEX only up 140 points on this stupendous news !

lolmao500's picture

Inverse austerity : this is what Keynesians want...

JustObserving's picture

If Spain could print $1.02 trillion a year (6.6% of GDP) like the US, then its budget defict would be lower than the US's 8.4% ($1.3 trillion on a $15.5 trillion US econoomy).

Without printing, $3.6 trillion so far, US would be worse than Spain.

BTW, here comes the morning gold and silver slam - as predictable as the sun.


Dareconomics's picture

If the bureaucrats are predicting high budget deficits over 7%, then what will the real numbers be like? Spain is manipulating its budget numbers...


It will need €233bn to finance itself this year. That's almost a quarter of GDP. Where is this money coming from?

Notarocketscientist's picture

So can we expect Krugman to point to this data in his next Pravda Times article as proof that countries really can run double digit deficits forever?