Several weeks ago Reuters caused a stir when it assured that the Spanish government exaggerated its 2011 deficit figures. Everyone sounded false alarms, because it turned out that the government was in the right. Although not for certain, today's news is quite grave: the deficit reached 8.51% of the GDP in 2011, which is 2.5% more than what Spain's previous government agreed to with the EU.
This bad news puts Spain in a jam, forcing them to carry out severe cutbacks or start down an irreversible path like Greece. The biggest defaults were noticed in regional government accounts, whose 1.3% deficits retreated further to 2.94%. It should be mentioned that some parts were governed by the Partido Popular.
The Central Administration deficit did not meet its objective by just a small margin. It went from 4.8% to at least 5.10%. Social Security predicted an impossible surplus of 0.4% but ended up with a 0.09% debt. Salgado knew all of this, but remained calm. Nothing is gained by carrying on like the Greeks, which would discredit Spain in the eyes of the market and the EU.
But now the government should balance the budget, forget about elections in Andalusia and implement cutbacks quickly, because the 2012 deficit objective of 4.4% looks nearly impossible, particularly with regional governments that control the majority of social spending. They should start to make budgets from scratch and offer elections to their constituents. Do you prefer telecoms, healthcare or education? For as much as we are waiting on the EU to help, we must think deeply about the structure of the welfare state and then set down the correct path as soon as possible.
