Spain Will Request a Bailout

Catalonia Seeks $6.3 Billion From Spain Regional Rescue Fund – Bloomberg.

Spain will have to request a bailout sometime this year. The Spanish budget situation is much worse than the mainstream believes and has been steadily deteriorating all year.

In March, the Spanish raised the target on its 2012 budget deficit to 5.8% from 4.4%:

That number was much too optimistic as we learned two months later that the budget deficit would be 6.3%:

Finally, the Spanish got the numbers right. Yea! Wine and tapas for everyone! After everyone woke up from their wine and tapas induced siesta, they realized that they had more work to do.

The budget deficit for the first half of the year was actually 4.04% (love that precision). If we double this number, we arrive at 8.1% for the year. Of course, the Spanish aren’t telling us everything. The regions are expected to run a 4% budget deficit for the year, and not all of this number is included in the worsening budget deficit. Let’s pretend that there is a good accountant working somewhere in the Spanish Finance Ministry who actually accounted for half of the regional debt in the projections. If that is the case, then we will only add half of the regional projected deficit to the total for a whopping 10.1% of GDP.

If you think this number is crazy, then look at its history for the year:

  • 4.4% in March raised 1.4% to 5.8%.
  • 5.8% in May raised .5% to 6.3%
  • Still 6.3% in August but running at a rate of 8.1% for an increase of 1.8%

In just about five months, the official number increased 3.7 points. That’s an 84% increase or 17% a month, not compounded. If we extrapolate this figure for the last four months, we get 68%. An increase of this amount over the last four months of the year give us an actual budget deficit of 13% of GDP, so my 10.1% back of the envelope calculation is actually quite conservative.

Don’t worry. This problem can easily be papered over with a bond buying program and vainglorious boasting by Super Mario.




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