Spain’s Deficit Targets For 2012
Now You See Me, Now You Don’t
Things in Spain are never exactly what they seem to be. This is a painful lesson that even Angela Merkel must have learnt in recent days, especially since she put her credibility so much on the line in backing the country’s deficit reduction efforts. “Spain has really done its homework and I think it is on the right track,” is the message she has been trying to sell to the world. Finding out that the Spanish deficit was not the 6% of GDP she had been promised, but a minimum of 8.2% in 2011 cannot have been a pleasant experience for her.
Naturally Spain isn’t Greece, but the results achieved hardly constitute evidence for a credible and praiseworthy effort. As the country slips back into a recession which may rival the 2008 one in its duration if not in its depth, there would now seem to be a lot of work left to do to restore confidence in the country’s institutions of governance. Unfortunately the performance of the new government so far has hardly helped change that negative impression.
In the space of less than a month Spain’s new leaders have managed to generate a sensation of timidity, procrastination and confusion. Timidity in the sense that the proposed labour market and financial sector reforms are widely perceived to fall far short of what is really needed, procrastination since many observers now feel that the interests of the People’s Party (PP) are being put before those of the country as a whole, by postponing much needed deficit reduction measures until after the key Andalusian elections in the spring. And confusion given that the two economy ministers speak with discernibly different voices, in particular when it comes to whether or not the government will maintain the 4.4% fiscal deficit objective for this year as set out in Spain’s stability programme. The frequency with which deputy prime minister Soraya Saenz de Santamaria has had to step forward to clarify what the official government position actually is was initially an embarrassment but is now becoming alarming.
In this situation the IMF – who must have been furious with the previous administration for having misled them so badly – have not been backward in coming forward. On the assumption that there is not a major policy change in the coming months, the international lender has revised its fiscal deficit forecasts for Spain to 6.8% for 2012 and 6% for 2013, meaning that if it does not seriously change course the country is now expected to miss its programme targets, and by a long way.
In an attempt to deflect attention from their own shortcomings Spain’s new leaders have tried to put much of the blame for what is obviously a structural deficiency in Spanish finances on widespread regional overspending, omitting to mention that those responsible for the decisions involved were mainly members of their own party, since it was they who controlled the majority of the regional governments in the key months of 2011. In this environment the claim that the People’s Party will be any more serious at national level than it is at the regional one remains at least to be established.
Catalan economy minister Andreu Mas-Colell has recently drawn attention to the hypocrisy of many national Spanish politicians in this regard. “You should be ashamed of yourselves”, he told former economy minister Elena Salgado and her team for saying that the central government were complying meticulously with their objectives while denying money due to the regional governments which had previously been promised, making part of what was really central government deficit show up at regional level.
In a letter to the New York Times he also pointed out that the attempt of many PP leaders to deflect attention onto the regions (even at the price of their own embarrassment) in all probability belongs to a much older and deeper political agenda, one which has nothing whatsoever to do with the present crisis - that of recentralising Spain. As Spanish economy minister Luis de Guindos told the Financial Times “The liquidity difficulties are truly an opportunity to impose hard conditions and measures in terms of reining in the deficits of the autonomous regions”.
Here in Catalonia we should also see the current crisis as an opportunity, an opportunity not only not to lose the hard won levels of institutional autonomy we already have, but also the right and appropriate moment to put straight a number of issues which have long needed putting straight.
Economist and member ofthe Advisory Council of InTransit