While the Spanish government sits back complacently, celebrating the achievements of the 2012 deficit adjustment program as if they were a triumph — when the promised deficit-reduction objective of 6.3 percent of GDP has not been attained — the European Commission has just issued a serious and troubling warning focusing on the magnitude of Spain's economic imbalances.
Clearly Brussels has reasons for issuing the warning, the apprehension being that the Spanish economy - if the trend of debt (private and public) and of unemployment is not corrected — may come to require more radical measures. And in the face of the government's insistence that recovery will begin to show signs of consolidation next year, alleviating some of the above-mentioned imbalances, the Commission points out that actual recession may well extend into 2014: a possibility that is obvious to every observer, with the apparent exception of the Economy and Finance ministries.
The reasoning of Brussels is sound. In spite of all the adjustments carried out by the government, and announced as absolutely indispensable, Spain's public debt grew by almost 15 percentage points of GDP in 2012.
True, part of this increase is due to massive subsidies to the financial system — reforms that Brussels wants to see brought to a conclusion once and for all. But, between the 40 billion euros going to the financial bailout, and the 148 billion by which the debt rose last year, there is a gulf that the ministers responsible for the economy would do well to explain, especially after the drastic cutbacks that have been implemented right and left, and which in theory ought to have put a brake on the growth of debt.
The Commission's report is apprehensive that Spanish debt (public and private) may arrive at the point of collapse, simply because its immoderate growth will be perceived by investors as a risk of default, compromising the stability of the euro.
Unemployment is the second great strangling factor mentioned in the report, which, in a roundabout way, criticizes the labor market reform. Just as Brussels congratulates the Spanish government on its adjustments and reforms, this being the ritual in such cases, but laments "delays in their implementation" (the real message), it also applauds the labor-market reform, but suggests that its impact be reconsidered "in terms of the objectives it is supposed to attain." This is an elegant way of explaining that the reform was intended to increase employment in a climate of legal security for companies and workers, and that it has achieved neither the one nor the other.
The Commission's warning in its report is not to be taken lightly, and it demands a more forceful response than the mere accumulative snowfall of week-by-week economic measures, which are announced as far-reaching reforms but, to judge by the results achieved, do not serve to reduce debt or unemployment. The prime minister says that on April 26, he is going to announce his second round of planned reforms. We can only hope it will be more effective than the first.