Around the Globe 04.26.2013

Spain Slashes “Growth” Outlook, Projects Higher Deficit, Delays Deficit Reduction | Zero Hedge.

Spain Says Deficit Target Must Wait 2 More Years Amid Slump – Bloomberg.

Still Sputtering, Spain Turns Away From Cuts – WSJ.com.

Spain Metrics

The mainstream media misreports the Spanish fiscal and economic situation whenever it puts pen to paper.  Fortunately, we’re on the job even on a beautiful Spring Friday in New York City.  There are two errors in the WSJ chart above which I have corrected.  The first is that the cost of the bank bailout is not included in 2012’s budget deficit.  Just because the EU says that this money will not count against the technical 3% limit for Eurozone countries does not mean that it does not exist.  The bailout money adds over 3 points to the budget deficit for 2012, and it will not be a one off item.  As property continues to plummet in value, non performing loans rise.  In fact, do not be surprised if the banks require another €50bn or so by the end of the year.

The second error is that the chart has not been updated to reflect Spain moving its budget deficit from 4.5% to 6.3% for 2013.  Allowing another 3 points for the second bailout gives us the number, about 9.3% in the redrawn chart above.

Cheap money from the world’s central banks has created a great yield chase, which is primarily responsible for the drop in periphery interest rates.  If this torrent of money ceases, Spain’s rates will begin rising again leading to a lot of trouble.

UPDATE 2-Differences with centre-right delay Italy’s Letta | Reuters.

LettaBerlusconi

I am sick to death of Italian politics.  At this juncture, it appears that the two establishment parties will collude to reduce the power of the insurgent 5 Star Movement.  Beppe needs to do something, or else his movement is heading to the waste bin of history.

Growth in U.S. Trails Forecasts as Defense Spending Falls – Bloomberg.

Bloomberg was hyping a 3% growth rate based on a survey of economists taken a few days ago.  Economists have trouble even forecasting the past quarter with a full bevy of data.  Remember that economic analysis is not science.

COLUMN-Market euphoria misreads the signals from Brussels and Rome: Kaletsky | Reuters.

This is an excellent piece, and I highly recommend reading it.  The author nails the Italian political situation.

Bundesbank Faults ECB Bond-Buying Plan: Report.

While BuBa will criticize OMT, that is its job.  Germans expect their central bank to be sober and conservative.  In the meantime, Merkel is calling the shots, and if the sovereigns come under distress the ECB will begin buying those bonds no matter how much the BuBa objects.

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