Spanish Cuts Take Toll on Public Sector

EMU officials in Brussels want to see specific details on how Spain will reduce its budget deficit to 3% of GDP in 2013. Given the 2011 deficit was 8.5%, EMU officials do not believe Spain, nor should anyone else. The targets will not be met. Moreover, some in Brussels accuse Spain of artificially inflating the 2011 deficit so as to better meet its interim target. Those are contradictory accusations actually. If the deficit is artificially inflated, it should be easier to make the targets.

Inquiring minds keep poking around at problems in Spain and everywhere one looks problems are far greater than government officials would like you to believe.

Conditions in Spain have deteriorated at a rapid pace. As little as a few months ago the Spanish economy was foolishly projected to grow at .7%. Now it expected to contract 1%. Likewise, Spain's budget deficit was supposed to shrink to 4.4% in 2011. Instead it rose to 8.51 percent up from a revised estimate of 8.2% which was up from a revised estimate of 6.5%.

MADRID (Reuters) - More than six million Spaniards were out of work in the first quarter of this year, raising the jobless rate in the euro zone's fourth biggest economy to 27.2 percent, the highest since records began in the 1970s. The huge sums poured into the global financial system by major central banks have eased bond market pressure on Spain, but the cuts Madrid has made in spending to regain investors' confidence have left it deep in recession.

Spanish banks have already shed 30,000 jobs in ins banking crisis. Another 20,000 cuts are due in 2013, along with pay cuts and reduced pension contribution. In response Spain's Banking Unions Announce Strikes. Workers at three of Spain's bailed-out banks will stage strikes in coming weeks as they fight mass layoffs, unions said on Monday, spreading industrial unrest to a sector where walkouts have so far been rare.

The implosion in Spain continues, with the budget deficit heading in reverse, now revised up to 9.4% of GDP. Spain's original deficit target for 2012 was 4.4%, then revised to 5% then 5.3%. Yet another revision brought the target all the way up to 6.3%. So how is Spain doing? A few flashbacks will explain. On April 10 I optimistically wrote Inconsistencies in Spain's Budget Suggest Deficit will be 7% not 5.3%

The selloff on Spanish and Italian bonds continued today with yields in Spain hitting euro-era record highs. On the deficit side of matters, I do not believe Spain will meet its budget-deficit targets, and neither does Fitch. Fitch Managing Director Ed Parker said Spanish Prime Minister Mariano Rajoy will miss budget-deficit targets this year “by a substantial margin.” according to a Bloomberg report.