Spain’s Austerity Program Starting to Show the First Results – Lower Growth, Higher Unemployment and Larger Government Deficit

What Exactly Were You Expecting?

Spain has been told by the European economic powers and the IMF to pursue policies that will reduce economic activity in order to reduce its budget deficit.  The country elected a new government to do just that.  And the new government will soon be presenting its 2012 budget which not surprisingly has a deficit target far above what Spain promised the powers that be.

Spanish Prime Minister Mariano Rajoy said his government, which came to power at the end of 2011, will prepare a 2012 budget that aims to reduce its deficit to 5.8% of gross domestic product, far in excess of the 4.4% target his predecessor, José Luis Rodríguez Zapatero, had committed to.

Of course the current Spanish government uses the time honored tradition of blaming the problem on bad economic times and on the previous government.

Mr. Rajoy said a rapidly deteriorating economic situation and a large 2011 budget overrun made the wide deviation necessary. Earlier this week, the government said Spain's 2011 budget deficit stood at 8.51% of GDP, compared with a target of 6%.

Here is a look at unemployment in Spain over the past few years.  Not exactly the picture of health.

Spain is still saying it will meet its 2013 target.

The Spanish leader, however, said his country is maintaining its commitment of reducing its budget deficit to the 3%-of-GDP limit for EU countries by 2013.

which is another time honored tradition.  When the future goal is more than one year out, one can always commit to making the future goal, because it’s so far out that no one can say that is not possible.  Once it gets close to 2013 Spain will have had time to develop a new set of reasons why it is not hitting its deficit goal.  And no, it will not be because of the austerity program.  That would mean the entire European program was based on false ideas and assumptions.  Can’t have that.