What they said when president Rajoy bent the deficit target bar


LONDON | Odd. After months of mild fireworks of demonstrations against austerity throughout Spain, it seems hard to believe that Ambrose Evans-Pritchard, international economics editor at The Daily Telegraph, would be struck. Even president Mariano Rajoy acknowledged that his reform plans for the labour market would probably spark a general strike. But Evans-Pritchard was struck, nevertheless:

“In the twenty years or so that I have been following EU affairs closely, I cannot remember such a bold and open act of defiance by any state. Usually such matters are fudged. Countries stretch the line, but do not actually cross it.

“What is striking is the wave of support for Mr Rajoy from the Spanish commentariat.”

617694277Whether you are a progressive activist who loathes the markets’ diktat, or a voter of the current conservative Spanish leader as a strong man who will bring about solutions to the nation, the pronouncement fits in any discourse. The Spanish government stated last week that it will relax the EU deficit target of 4.4pc of GDP for 2012 to 5.8pc instead, having concluded that 2011 actual figure was 8.5pc and not 6pc as the last Socialist cabinet had promised.

As for the British commentariat, though, the picture is one of excitement surrounded by fog. At the Telegraph, French premier Nicolas Sarkozy and German chancellor Angela Merker were accused of controlling EU economic policies with a heavy hand, but the consequences of the Spanish position should scare us all.

“The Spanish rebellion has begun, sooner and more dramatically than I expected.

“As many readers will already have seen, Premier Mariano Rajoy has refused point blank to comply with the austerity demands of the European Commission and the European Council (hijacked by Merkozy).

“The Latin Bloc is awakening.”

At the Financial Times, Tony Barber’s message is unclear, too.

“Depending on one’s viewpoint, Mariano Rajoy, Spain’s prime minister, displayed either courage or chutzpah last Friday…”

Barber said president Rajoy was simply applying an economics lesson that most European politicians bear in mind at least since the second world war, that is, taking huge amounts of public investment off the economy amid a crisis can only lead towards a full recession. Barber dismisses German complaints.

“The trouble is that these German preoccupations are, in many respects, beside the point. Fiscal indiscipline was one cause of the crisis, but not necessarily the most important.”

But then, he asks for inflexibility against Spain.

If Spain’s partners endorse its relaxed deficit targets, the credibility of the eurozone’s new fiscal regime will be damaged.”

At The Economist, as always, their phrasing is conciliatory. The image of president Rajoy as a peripheral freedom-fighter still comes up,

“It has taken little more than two months in government for Mr Rajoy to complete his transformation from gold-star pupil of Europe’s austerity warriors to chief rebel”,

though the magazine describes the new deficit target as ‘realistic’.

“Despite the considerable loosening, Mr Rajoy insisted he would remain Señor Austerity. His new target will still require an adjustment of close to €30 billion. That is roughly the same as the Save Italy programme of Mario Monti, Italy’s newish prime minister.”

What neither The Economist, nor the European Commission or the markets would forgive Spain’s government, however, is a failure in meeting the new self-marked deficit target, the magazine says.

Meanwhile in the real world, addressing reporters during a visit to Vienna, Manuel Barroso explained the Commission needed more information about Madrid’s programme so he could not comment in detail. Barroso said he has

“no doubts that the government will honour its commitments with respect to the stability and growth pact.”

And ratings agency Fitch noted that

“The Spanish government has reportedly asked the European Union to consider allowing an increase to its 4.4 per cent 2012 deficit target. If this was agreed it would not impact our rating.’

About the Author

Victor Jimenez
London contributor at thecorner.eu, reporting about the City and the Eurozone economies. He regularly writes for Spanish newspaper group Prensa Ibérica--some of his features include shared work with journalists of The Daily Telegraph and the BBC.

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