Friday Night Tape Bomb: Spain Hikes Budget Deficit From 8.5% to 8.9%
Just when we though that nobody would take advantage of the cover provided by the epic flame out of the FaceBomb IPO and the ongoing market crash, here comes Spain. Because there is nothing quite like a little Friday night action following a market drubbing and an "IPO for the people" shock in which to sneak the news that, oops, sorry, we were lying about all that austerity. Because while it came as a surprise to the market back in December when Spain announced it would post a 2011 budget deficit of 8.5% instead of the previously promised 6%, the market will hardly be impressed that Spain actually overspent by another €4.2 billion, to a brand new total of €95.5 billion of 8.9% of GDP. So Monday now has two things to look forward to: the Spanish bond margin hike on one hand courtesy of LCH.Clearnet earlier, and the fact that despite spending even more than expected, GDP growth has disappointed and the country is now officially in a double dip. Hardly what the country with the record wide CDS needs right now.
Spain was forced to revise its 2011 budget deficit upwards on Friday, after three of the country's regions restated their own figures, exposing the struggle the autonomous communities have had curbing spending even ahead of deeper cuts this year.
Spain said its 2011 public deficit now came in at 8.9 percent of gross domestic product, up from the 8.5 percent initially stated. The country had already widely overshot its deficit target of 6 percent for last year.
The country's treasury department, which disclosed the new figure late on Friday, said Spain was sticking by its 2012 budget deficit target of 5.3 percent of GDP, despite the setback with last year's numbers.
The move came after three of Spain's 17 regions - Madrid, Valencia together with Castilla and Leon - earlier revealed in their budget plans for this year that their own 2011 budget deficits were higher than initially stated.
The central region of Madrid said it finished 2011 with a deficit of 2.2 of gross domestic product, rather than the 1.13 percent it had initially released. Valencia's budget deficit came in at 4.5 percent at the end of 2011, instead of 3.78 percent.
Castilla and Leon's deficit was also slightly higher than previously stated.
The three regions are among the most important in Spain - Madrid is the second largest by GDP, and Valencia the fourth.
Though the autonomous communities have already struggled to rein in spending, deeper cuts now loom, after the central government on Thursday approved their plans to cut spending by 13 billion euros ($16.54 billion) and increase revenue by 5 billion euros.
Of the 17 highly-devolved regions, only Asturias, in the north-west of Spain, had its budget rejected, meaning it will have to present a new one for approval.
The communities' commitment to savings this year will be crucial for Spain to get its overall budget on track.
Fitch said on Friday the government's approval of the regions' budget plans was positive, adding that the willingness of autonomous regions to pass structural reform had increased, but warned there was still a risk they could yet miss 2012 targets.
"We ... expect the central government to put considerable pressure on the regions to cooperate," the rating agency said. "Nevertheless, in the current economic context we consider that there is a risk that potential reforms might have a limited impact on 2012 accounts."
In other words, more rating agencies, downgrades, which as we explained a month ago means that if all rating agencies have Spain at BBB+ or below, the ECB will demand another 5% collateral for bonds posted as repo. Add that to the toxic spiral of LCH bond margin hikes, and things start to look rather bleak.
But saving the best for last:
The change comes as Spain is racing to restore confidence in its banks
and reassure investors spooked by euro zone fears that it can meet
ambitious spending targets.