Spain Is the New Greece

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The socialist-inspired traveling circus more commonly known as the EU debt crisis is moving from Greece to Spain. Last Friday, Spanish Prime Minister Mariano Rajoy announced that a deepening recession in that country would make it impossible to meet the EU-mandated deficit reduction target of 4.4 percent of GDP for FY2012. He proposed a target of 5.8 percent instead. The latest “readjustment” is similar to the one that occurred in 2011, when Spain’s target of 6 percent gave way to the reality of 8.5 percent. Ironically, Rajoy made his announcement on the same day 25 European leaders signed a fiscal pact–aimed at strengthening budgetary discipline among its member nations.

Yet it is the choice between budgetary discipline that would require previously prepared sanctions against Spain, or once again making them an exception to those rules that reveals the EU’s Catch 22 dilemma: new sanctions would undoubtedly induce further unrest in a nation already beset by a 22.85% unemployment rate and an economy that has contracted economy by 0.3% on a year over year basis. On the other hand, another exemption to supposedly rigid budget rules would likely undermine confidence in the EU’s overall recovery plans, as yet another incarnation of  “too big to fail” would be playing itself out on the world stage.

The actual numbers are daunting. In 2011, Spain’s national and state governments spent $120.72 billion more than they took in during 2011. This is only a modest reduction compared to the $129.75 billion budget deficits the country ran in 2010, underscoring the reality that austerity measures imposed on that nation have yielded precious little in the way of genuine savings. Adding to the uncertainty is the fact that two-thirds of the current shortfall was accrued by the nation’s regional–and autonomous–governments. Absent the ability to compel regional governments to fall in line, the idea that Spain’s national government can meet fiscal targets imposed by the EU appears dubious at best.

Yet if the EU insists that Spain adhere to the promises it made on December 30th, an additional $33 billion of deficit reduction must be found on top of the $19.8 billion in savings already accrued from a combination of $11.9 billion in spending cuts, and $7.9 billion in tax increases. That number represents a staggering increase of 167 percent of additional austerity measures imposed only two months after the original pledge. In addition, Spanish economic output will fall 1.7 percent this year, making a mockery of the 1 percent drop recently forecast by the EU, along with the 1.5 percent predicted by the Bank of Spain only two weeks ago. And unemployment is now expected to hit a mind-boggling 24.3 percent in 2012.

Rajoy insists that Spain remains within the proposed EU guidelines because it intends to meet the public deficit goal of 3 percent of GDP by 2013. Yet it reportedly rankled many EU leaders when the Prime Minister publicly announced his intentions without first holding private negotiations with the European Commission. Last November, the European Commission demanded the power to override budgets enacted by individual EU nations, and its members are no doubt irked by Rajoy’s characterization of his failure to meet the 2012 guidelines as a “sovereign decision by Spain.”

An official not authorized to discuss the issue described the move as reflective of Rajoy’s political inexperience. “He thinks that most of the people around the table are political allies who will support him,” the official said. “But here you put your political considerations away because the dynamic that counts is that of national interests.”

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  • Anthony

    More investment by Islamic financial institutions is he only answer. Sharia compliant loans tied with modest concessions to increase immigration quotas favorable to the cultural exchange of Moslem civilization would solve the debt crisis and help eliminate Islamophobia.

    Some curriculum modifications approved by the EU and Arab League at the pre-school level would be tied to the loan.

    • hahabad

      The only workable Sharia law is to allow Greek and Spain to borrow money from Arab League without paying any interest.

      Use immigration quota as condition for loan is against Sharia, Jihad to the proponents!

  • Red Baker

    Greece and Spain are already in depression, and more EU nations will follow. Liberals/progressives/socialists are dedicated to socialism, not to prosperity. Even as economies collapse into depression, they see the power of government grow. They are achieving their objective. Even though the cost is high, to socialists it is worth depression. Voters are never given the chance to vote on whether to join (or remain in) the union of socialist EU governments, the union which will drag them all into depression.

  • Snorbak

    Your sarcasm has been noted!

  • Len_Powder

    It's fascinating to watch countries destroy themselves. Of course it's happened many time in the history of the world, but never have countries been so intricately bound together. For this we can thank the globalists who think that unifying the world under one government and one currency will solve all of it's problems. How's that working out for you in the EU countries? Who could have imagined that the day would come when European leaders had to travel to China to request its assistance in averting financial disaster? Who will they ask next? The King of Saudi Arabia or the continent of South America? An individual can live beyond his means by borrowing or stealing from others, but these tactics will ultimately fail and prison will be the only alternative. At least they will get free bedding, meals, and porno flicks on HD TVs. Not so for countries, or its citizens. Someone should start a lotto based on which of the PIIGS will collapse first, second, third, etc. The one who correctly predicts the order should be awarded one of the PIIGS countries as the winning prize.

    • paloma marco

      I do love USA but after your message I hope the USA collapse first… Spain is learning the lesson and is leaving Socialism behind thanks to the wise choice of Spanish people in last elections. You (USA) are right in the way to Socialism with Mr. Obama. Naive Americans have been seduced by socialist Obama. We (Spanish) are our way out, thanks God.
      So I wish you luck. And please do not compare Spain with Greece (not the country, but the current situation). Spain is richer and wiser. And Spanish people are no theaves, but very decent people from an old and well-respected country. No PIGS. So please, be a little more respectful. A decent Spanish citizen.

  • santa

    Greece has land borders with Albania, the Republic of Macedonia and Bulgaria to the north, and Turkey to the east. Thanks for sharing.
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