Yesterday, Bloomberg repeated Spanish Prime Minister Rajoy’s claim of a budget deficit under 7% for 2012. We immediately jumped on this statement:
This year, Rajoy just announced that Spain’s budget deficit will come in at less than 7%. This number is fictitious, but the MSM is not scrutinizing these figures. Journalists can write, but they can’t add. MSM Neglects Fact Checking Spanish Claims
Today, Bloomberg writes the headline now stating that the deficit is 10.2%. What happened? Well, the lower number did not include the costs of the bank bailouts, which added 3.2% of GDP. For some reason, this fact was not significant enough to include in the article. Still, Rajoy claimed under 7%, and even without the bailout the deficit is not less than that.
Excluding the costs of the bank bailouts is a canard anyway. One time expenses are typically explained on balance sheets, but these bailouts cannot be classified as such. There have been bank bailouts the last three years in Spain. As the property market continues to fall causing non-performing loans to rise, there will be more bank bailouts in Spain’s future.
Spain’s fiscal position is even more dismal than I expected, and I am a realist. The European Commission is relentlessly optimistic. They have Spain’s debt to GDP ratio topping 100% by the end of 2014, but it is clear that this threshold will be breached during 2013. Currently, it’s predicted to be 88.4%, but we already know that Spain’s budget deficit will be revised upward. The new numbers will bloat the ratio to over 90%. The deficit for 2013 is projected to be 7.2%. As usual, this is an optimistic figure and does not include the costs of more bank bailouts. At this point, 1o% is a conservative estimate for 2013’s deficit and Spain will soar through the 100% ceiling thus.
Since the current austerity plan is not working, Ollie Rehn has figured out it is because not enough of it has been done, rather than admitting a new plan is needed. He calls on Spain to make deeper cuts, but the government will not be able to. Because of political scandal, Rajoy no longer has the clout to get anything done.
At its present rate of decay, Spanish finances will soon reach a tipping point. By the end of the year, that OMT program may be put to the test.
Read more: Spain Firmly Within Juncker Zone