In the Eurocrisis, Improvement is Always Just Around the Corner

Euro zone’s debt stabilizes as north-south split emerges | Reuters.

When it comes to the Eurocrisis, final victory is always within the sights of the eurocrats, and the mainstream media has no problem repeating these forecasts.

The latest news spun in this manner is the release of debt to GDP numbers from Eurostat. If you do not understand how these numbers work, then you could make a case for them constituting good news for the eurozone’s debt to GDP ratio rose only 0.1 points from 89.9% to 90%.

These numbers are reported on a lag. We already know that GDP shrinkage has accelerated since the 3rd quarter, so the decay of Eurozone public finances continues. Moreover, Spain is reporting fictitious numbers. If the Spanish debt to GDP figures were accurate, there would have been a larger reported rise in the Eurozone ratio, large enough so that “stabilization” could not be claimed.

Spain’s deficit was about 9% in 2012 according to economists, but the Spanish continue to report lower numbers. A 9% deficit equates to 2.25% per quarter, but the Eurostat report shows the Spanish deficit only rising 1.4%, which is in line with Spain’s forecast budget deficit from March. None of the other countries have a discrepancy like this. I checked the figures from Greece, Italy, Portugal and Ireland; their deficits rose in in line with their forecasts for the year.

Spain’s numerical subterfuge is hiding in plain sight. If one takes the trouble to examine the numbers released by the various departments and agencies, one learns that they conflict. Yet, when Spain requests a bailout and the true extent of the fraud is discovered, people will act surprised.

Spain is part of a larger problem in the Eurozone. The single currency has split the zone into two groups. In the core, using the currency is an advantage and economic and fiscal numbers reflect this. Note the higher growth rates in the FANG and their smaller, slower growing deficits.

In the periphery, using the currency has become a burden reflected in shrinking GDPs and growing budget deficits. These numbers show that the divide has widened despite all of the crisis fighting efforts deployed so far. Furthermore, there is no sign that this dynamic is improving.

Even though this article spins the Eurostat numbers as being positive, they are anything but. According to the European Commission, debt to GDP ratios are set to peak this year with decreases starting in 2014. There is no basis for making such a rosy forecast. GDPs continue to fall, and debts continue to increase with no end in sight. Only a miraculous boom starting late in 2013 will prevent the numbers from getting even worse.


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