Why such a fuss about Spain’s budget?

By Juan Pedro Marín Arrese, in Madrid | The Spanish government will unveil today its budget bill for 2012. In the good old days, analysts and observers bent over its pages to find the clues for public sector priorities in the year. Nowadays you can dispose of such a demanding task. Brussels has unravelled its complexity, reducing the whole exercise to the simplistic aim to meet, no matter how, the deficit target. I bet it will match to the penny the 5.3% objective imposed by Eurocrats. The rest can be regarded as fiction literature: just good for those seeking an evasion from the surrounding reality.

Does it make sense to trim the budget to a single figure? In a way it does, inasmuch as a country performance is abridged to stick to that simple rule. Needless to say, any fiscal consolidation process involves keeping up the commitment entered to follow a certain path. But the key issue lies on whether deficit stands as the best test for that purpose. After all, it amounts to a balance between maximum authorised expenditure and a mere forecast on receipts you envisage to cash.

Even allowing macroeconomic perspectives to be fairly squared, expected income tends to diverge from ultimate figures by more than 1% GDP on average. In the current volatile and depressed conditions slippages could end up in utter disarray. So, what is the purpose of sticking to such a deceitful goal? The only plausible answer lies in Euroland tendency to turn complex issues into easy to measure formulae. As in the Achilles and the tortoise paradox, crude assumptions to implement austerity as the sole tool for slashing deficit has led to widen it up by depressing economic activity. No one seems to be aware that trying to squash budget deficit in the absence of growth can turn into nightmare.

Spain seems the next candidate to spiral down into a vicious circle. No single country has ever been forced to axe its budget in such an abrupt way. Tax squeezing will significantly increase, spending cuts proving unable to match the huge gap to be filled. Mending the existing deficit so hastily will only contribute to further undermine consumer confidence, dragging down both activity and fiscal revenue. An unpalatable prospect most likely to send the economy plummeting. Undoubtedly, tough action seems unavoidable if fiscal haemorrhage is to be sealed. But one fails to capture the logic of focusing exclusively on budgetary imbalances when sluggish growth lies at the heart of current shortcomings. Wouldn’t it make sense to provide some breathing space to the ailing Spanish economy?

A more realistic timetable to scale down both debt and deficit might turn out to be a better solution than putting Spain under close scrutiny and inevitable suspicion. At the end of the day, imposing unattainable objectives only fuels frustration. Missing the target will only make happy those  turning risk exposure into fat profits.

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