Remember the running joke about Spain's constantly deteriorating budget? Or was that Greece's? No matter: there was a time when Spain was expected to hit a 5.3% budget deficit in 2012, and the Maastricht mandated 3.0% by 2013. So much for that. It turns out the Spanish economy has deteriorated so much in the last few months, that the EU had no choice but to grant Spain a 1 year extension, according to Europapress. In doing so, the EU has eased deficit targets for Spain by 1% in 2013, granting it a 6.3% deficit miss, a number which will be revised at least once more before the year is over, and the 2013 target is now widened by 1.5% to 4.5%. So much for serious deficit cutting. But let's blame "austerity" while we are at it. It would, however, be great if countries in Europe, or anywhere, were actually austere, and cut their deficits, instead of just blaming austerity for every economic problem while never actually enacting such policies (as we explained before [8]). So while Spain gets an extension due to a "recession of rare violence", the trade off will be even greater supervision by the Eurogroup, or said otherwise, more people will watch how Spain does nothing to actually fix itself and then 6 months from now everyone will be shocked, shocked, when the 2013 deficit is over 8%. In other news, Spain 10 Year bond were trading at 7.08%, well wide for the day and about 20 bps shy of the all time record lows.
From Europapress [9]
Economic ministers of the eurozone are set to approve an extension of one year for Spain, until 2014 instead of 2013, to correct its excessive deficit and return to bring it below the threshold of 3% of GDP.
"The Spanish authorities should put an end to its present excessive deficit situation by 2014," the draft decision that the ministers will discuss. If no consensus, the extension would be formally approved by Ecofin on Tuesday.
In return, the EU requires the government to "take further measures without delay" setting in 2012 to compensate for the deviation in the deficit during the first half. In addition, Spain will have to file "in late July 2012, the multi-year budget plan for 2013-2014" which detail all the measures envisaged to reduce the deficit.
With this relaxation of the fiscal calendar, the new deficit targets are 6.3% in 2012, 4.5% in 2013 and 2.8% in 2014. The Spanish authorities should achieve an improvement in structural balance of 2.7% of GDP in 2012, 2.5% of GDP in 2013 and 1.9% of GDP in 2014.
To achieve these objectives, the Eurogroup asks the Government to apply strictly the budgets of 2012 and plans for rebalancing of the autonomous communities. And he claims to be prepared "to take further action if they materialize the risks to the budgetary plans and accelerate the deficit reduction in 2013 and 2014 if economic or budgetary conditions will result in better than expected".
The EU agrees to allow more time for Spain to consolidate its public finances by the "recession of rare violence" in the country, according to EU sources explained. STRENGTHENING THE MONITORING OF SPAIN
In return, the Eurogroup intensified surveillance over Spain. For starters, it gives the Government within three months to take "effective measures" that would meet the new targets. Furthermore, "the Spanish authorities should report on progress in implementing these recommendations in three months."
Finally, the EU calls on Spain "strictly enforce the new provisions of the law of budgetary stability on transparency and control the budget" and "to monitor compliance with budgetary targets throughout the year for all levels administration.
And it requires the creation of an "independent budgetary institution with the mission to control fiscal policy and provide analysis and advice in this area."