Rajoy said yesterday that the 2012 public deficit reached 6.7% of GDP. This figure is 0.4% greater than the agreement that Spain made with the EU, but acceptable because nobody had accounted for the severity of Europe's economic crisis when the deficit target was set.
The markets are also relatively pleased with a deficit ratio below 7%. Staying below that rate will keep Spain's credit rating where it is and ought to cut the risk premium. We will have to wait on the details of 2012 results to figure out how the country managed to save 23 billion euros in a single year. In order to meet this goal, many 2012 payments were deferred to 2013. The EU has allowed these accounting tricks, but they indicate that Spain still has a lot of cuts to make if it wants to restore health to its public accounts.
