Op-ed: Spanish deficit at mission impossible stage

With another recession in sight, the EU is considering relaxing the timeframe they will give Rajoy to reduce Spain's deficit. Rajoy, Montoro and Guindos have hinted at this possibility, too.

The current environment is obviously rife with austerity. Taxes were raised and spending was cut by more than 40 billion euros. Financing is either expensive or nonexistent, so there is no credit available. High debt levels are causing less consumption and business activity and higher unemployment and, therefore, an increase in social welfare benefit enrollment and a fall in national earnings. On top of all that, there are visions of global contagion.

All of these factors are linked together in a vicious circle. Markets are looking for growth and wary of whether debt levels are sustainable as the denominator in the debt/GDP ratio shrinks at an alarming rate.

Germany and the European Central Bank (ECB) would have the ability to slow this pernicious spiral. Indeed, Europe is solvent enough to get out of this crisis without relying on funds outside of Europe. But Merkel keeps harping on discipline alone, which is ironic considering how much she has talked about a growth plan. All that's left is for countries to default one after the other like Greece. Belgium just asked for an extension to the terms of their financial reform agreements and received a "no" in response.

Current austerity demands are reasonable. Even still, the EU could establish a habit of allowing countries a more gradual period of time to reconcile their budgets. If this plan is sold as a means to preserving growth, even the markets will approve. On the one hand, Spain meeting a 3% debt/GDP ratio by 2013 could be an elusive objective, but on the other hand it could be the ticket to an open bar for aid.