Rain in Spain has not left the Plain

Wait a Moment

By Mark Grant

It sounds good when said and credible and positive but the problem is that it is one more absurd illusion. Spain, this morning, says the next round of budget cuts are going to come from Education and Health benefits which is all very nice except they do not totally come under the purview of the Spanish Federal government. The way that Spain is currently constructed these expenditures are mostly under the control of the regional governments and so that these kinds of promises by the current administration in Spain are wisps of cultivated air floating from Madrid to Berlin. Even if the Federal government could get the cuts accomplished it will take them months and perhaps months and months so that the headlines of what Spain is going to do has all of the substance of the milky froth atop some cup of coffee in Valencia that resembles a cappuccino.

Now Spain’s GDP is projected to be approximately $1.4 trillion in 2012 and they are missing their EU mandated target by about 5.30% which is $74.2 billion in aggregate. The fantasy of Health and Education cuts only amounts to $13 billion if actualized and they are back to the standard European tricks that the rest will come from a crackdown on tax evaders, asset sales and projected economic growth which have all of the substance of Don Quixote’s windmills. In 2011 the government of Spain promised to curtail the deficits of the Regions and they fell short by 2.5% or $35 billion. For all of Spain they promised the EU in 2011 that they would shrink their deficit by 3.2% and the reality was only 0.8% after all was said and done. To understand Spain better you should know that about 60% of the regional budgets are directed at Health and Education so that the Regions would have to cut approximately 10% of their budgets to attain the $13 billion that the Federal government is calling for and I do not believe that local politics will allow for this.

To make matters worse the Regions’ debt now accounts for more than one-third of the national debt to GDP and each and every Region is now running at a deficit. There is quite a variance here from around -1.0% in Madrid to more than -7.0% at Castilla-La Mancha. There are such strong feelings in Catalonia that the Region has threatened to take the national government to court for not respecting the laws for the autonomous regions of Spain. In an amusing footnote the CEO of Spain’s largest bank, Santander, spoke this morning in Madrid and called for the ECB to begin massive Quantitative Easing and to buy both public and private debt. Everyone in Europe wants to spend everyone else’s money, not their own of course, and then not to be held accountable for it as Eurostat does not count sovereign guarantees or contingent liabilities of the nations in Europe. The ECB is owned by all of the governments in Europe of course, but tell no one; no one at all.

“Mere flimflam stories and nothing but shams and lies.”

                                                                 -Miguel Cervantes

To make matters worse they government of Spain is now directing the Spanish banks to raise an additional $65 billion in 2012 which is going to come from where I wonder. Perhaps the Spanish Inquisition Fund for the Unemployed. The unemployment numbers for Spain are now the highest in Europe for both the general population and those under 35 which now stands at almost one-half of the country’s younger people. I fear that Prime Minister Rajoy’s eminence may be of short duration.

“Spain does not need a financial bailout at this moment."

              -Spanish Economy Minister Luis de Guindos, April 10, 2012

Wait just a moment; the next one will arrive!