Public accounts out of control
Spain cannot reduce by half the deficit previously forecast for 2012
On Monday the final figures for the Spanish state budget for 2012 revealed a deficit of 8.5 percent of GDP, a glaring 2.5 percentage points above the objective agreed upon with the European Union of 6.0 percent, and also superior to the government’s first estimate at a little over eight percent. The news is bad — although it had been foreseen, if not to its full extent — because it augurs both a sharp controversy concerning political responsibility for the gap, and a tense tug-of-war with Brussels.
Indeed, the worsening of the deficit can only be counteracted with greater cutbacks in spending, or with higher state income from tax hikes, such as the often-denied contingency of raising VAT. Or with a combination of both approaches — coupling bad with worse, from the viewpoint of economic recovery.
It would be well then for the new Popular Party (PP) government not to waste any more energy in diatribes on just who is politically responsible for these adverse elements in the inheritance it has received. It should abstain from such finger-pointing for reasons of mere prudence because, if there is to be any further increase in the sacrifices being demanded of the Spanish public, the greatest possible consensus is desirable.
There is also the fact revealed by the breakdown of the deficit showing that the previous government of the Socialist Party (PSOE) is directly responsible only for 0.3 percentage points of the shortfall, while the Social Security system accounts for 0.5 points, and the municipalities for almost 0.4 points. Meanwhile, no less than 1.6 percentage points is the responsibility of the regional governments, which have been very largely in the hands of the PP.
The responsibility then is widely shared. And these 1.6-point gap (more than half of the total) carries with it, moreover, a strong indication that the PP, now the governing party, must have been aware of the general dimensions of the deviation, and is in a poor position to feign ignorance or surprise.
The new data make it all the more advisable to insist on further negotiation with Brussels to moderate along less dramatic lines the agreed path toward the stabilization of public finances.
To put it simply, it is not viable to reduce the Spanish deficit to half in the course of 2012 since the previous 4.4-percent target was planned for other circumstances. The economy would be further strangled. For this reason it is absolutely necessary to soften the timetable for deficit reduction — this timetable being a doctrine often preached by the government, which on Monday the finance minister took as having being abrogated.
But if it wishes to generate greater confidence, the government — which already has in hand the forecasts for 2012 (Bank of Spain, IMF and European Commission), and now also knows the exact extent of the deficit — ought to present the budget for 2012 as soon as possible, rather than put off its most unpopular measures until after the regional elections in Andalusia.
