Spanish government discretionary fiscal deficit rises and real GDP growth returns

[David_N]

This is taken from Bill Mitchell's blog, but it is an interesting read. Anyone who has been paying attention understands that Austerity is a failure and that counter-cylical fiscal policy is the way to go.
Spanish government discretionary fiscal deficit rises and real GDP growth returns | Bill Mitchell – billy blog

The latest data shows that the Spanish government is in breach of Eurozone fiscal rules and is growing strongly as a result. Those who claim that Spain demonstrates how fiscal austerity can promote growth should examine the data more closely. The reality is that as growth has returned (albeit now moderating again), the discretionary fiscal deficit (that component of the final deficit that reflects the policy choices of government) has increased. Government consumption and investment spending has supported the return to growth, which had collapsed under the burdens of fiscal austerity between 2010 and 2013. Spain demonstrates how responsible counter-cyclical fiscal policy works.

The entire eurozone is a mess..

In order to bring the headline government deficit below the 3 % of GDP reference value by 2014, Spain was recommended to deliver an improvement of the structural balance of 2,7 % of GDP in 2012, 2,5 % of GDP in 2013 and 1,9 % of GDP in 2014 …

The – European economic forecast – Spring 2012 – that those targets were derived from were uniformly poor and understated the contraction in the Spanish economy.

Things turned sour.

The Spring forecasts had Spain contracting by 1.3 per cent in 2012 and only 0.3 per cent in 2013. The reality was quite different. Spain contracted by 2.6 per cent in 2012 and 1.7 per cent in 2013 – quite some difference!

On June 21, 2013, the European Commission released an updated report – Council recommendation to end the excessive deficit situation – which acknowledged that:

The deterioration in the macroeconomic outlook is partly linked to additional consolidation measures included in the 2013-14 budget plan and the 2013 budget being taken into account.

In other words, they got it wrong, imposed pro-cyclical fiscal cuts and the economy contracted by more than they had expected. Amazing really!

So a heap of austerity measures were outlined for Spain to follow, irrespective of the continuation of elevated levels of unemployment, particularly among Spain’s youth.

At that time, Spain’s unemployment rate was 26.1 per cent and the youth (under 25 years) unemployment rate was 55.5 per cent.

The European Commission was for the time happy that the austerity was sufficient. They said on November 15, 2013 that Spain had “taken effective action and that … no further steps in the excessive deficit procedure are needed at present”.

And now...

Spain’s 2015 public deficit came in at 5.2% of gross domestic product (GDP) … The €56.6 billion shortfall means that Spain has exceeded its target of 4.2% of GDP agreed with the European Commission by around €10 billion …

Still, 2015 was also a year in which economic growth surpassed all forecasts and tax revenues jumped significantly.

 

[David_N]

This should lead to a discussion about policy that actually helps these countries improve, instead of continued calls for austerity and the disastrous requirements for countries using the euro.

 

[joG]

This should lead to a discussion about policy that actually helps these countries improve, instead of continued calls for austerity and the disastrous requirements for countries using the euro.

It has been clear from day one that Keynes had a better answer to the collapsed bubble recession than Schäuble's, which has not only destroyed lives across the continent but undermined the credibility of the EU.