Editor’s note: This article was first published in October 2011, and all its figures and context are from that month: a deficit of about 50 billion euros in the first eight months, expected revenue against spending, the upcoming 20 November 2011 general election and a forecast of at least five years of hardship.
So far this year, the state’s accumulated deficit over these eight months stands at roughly 50 billion euros. That is already very close to the agreed ceiling of 65 billion, a figure we must not exceed, and yet, unless drastic measures are taken, we will hit it very soon.
The main problem facing Spain, and much of the European Union, is that the economy is being politicised: our politicians care more about votes than about what the country actually needs.
Any expert you ask points to just a few ways out: tax rises, cuts and adjustments… None of the measures to get the economy back on its feet will benefit the public, and the sooner we accept that, the less disappointed much of the population will feel with the politician they voted for.
The dilemma of solving the crisis, with real figures
This year the state expects to bring in around 400 billion euros from all sources, tax rises included (better than expected). The problem is that it will spend 465 billion euros. Basic arithmetic says that the gap amounts to 6% of GDP and 15% of revenue, so despite the tax rises meant to raise more money, the situation has not improved and is not going to.
It’s incredible that, with these figures, some people are still unsure whether a new recession is coming, when the real question is… when will it arrive? Of course, we need to understand what citizens would consider a recession, because in this case an improvement in the public deficit won’t necessarily be felt in taxpayers’ pockets.
We all know very harsh austerity measures will have to be applied. The problem is that the 20-N general election (20 November) is still pending, and our politicians don’t want to announce those measures for fear of alarming voters. And believe me when I tell you that, whether the government is red or blue (Socialist or People’s Party), Spanish citizens face at least five years of anguish.
Spain is no longer attractive to investors
Alberto Spagnolo, director of investments at Merrill Lynch Wealth Management for Spain and Portugal, already considers Spain a risky country, and his message to clients is that “Spain isn’t what it used to be”.
Warren Buffett has pulled his exposure to Europe, and since he is a benchmark for investors, many others are bound to follow in his footsteps. Europe has serious problems. The European Union was formed so that many countries could grow together, and few foresaw the contagion effect, where a single country can endanger investments across the rest of the eurozone. In this case, many countries are sick, and with this flu we will end up infecting the whole group. Spain, with its high unemployment and poor growth prospects, could be one of the hardest hit.
It is no longer a question of being positive or negative about the way out of this crisis. It’s a question of looking neutrally at the real economic situation, bearing in mind that the measures applied so far have achieved nothing.
That is why the longer we go without real measures to improve the situation, the dimmer the light at the end of the tunnel becomes.
In short: whatever they try to sell you, Spain will face cuts and adjustments, together with tax rises. Perhaps what we should be analysing is what will be cut, what will be adjusted, and who will bear the biggest tax increase. Your political leanings don’t matter: with one government or the other, this crisis will be paid for by citizens, not politicians, unless some magician with an unknown method stands for election. The trouble is that we already know there are no magicians and no magic tricks. In the end, as Barack Obama put it, it’s just maths. Additions and subtractions. You subtract from citizens and add to the public coffers. The more is taken from taxpayers, the more we contribute to improving the public deficit. That’s all there is to it, and if anyone tells you otherwise, they’re lying to you.
Featured image: Raystorm, CC BY-SA 3.0, via Wikimedia Commons.
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