Is Spain’s Finance Minister Serious?

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Politicians may not always tell the whole truth, but most of the time they’re in the neighborhood. Spain’s finance minister, Luis de Guindos, said this morning that the country will pick up in 2013 and that current job losses and unemployment will stop. If he really believes that, he’s probably the only person who does.

Spain has agreed to trim its public deficit from 8.5% of GDP in 2011 to 5.3% in 2012, and in 2013 the public deficit must come in a just 3% of GDP. In 2012, the government proposes cutting €27.3 billion from its public spending with a combination of spending cuts and higher taxes.

The country’s debt service is projected to rise to €29 billion this year and GDP is expected to contract by -1.7%. Unemployment is running at 23%. The government has, so far, steered clear of lowering wages and pensions, but plans to cut education and health care expenses, as well as sell off a couple of banks it bought to save them from closing their doors. Added up, it won’t be enough, and investors know that. That’s why bond yields are at 5.8%, 400 basis points higher than Germany’s yields.

The GDP contraction plus the unemployment rate plus the rising cost of debt plus the central government’s inability to get its autonomous regions’ budgets in line equal the virtual certainty that de Guindos is talking his book, not doing his math. Spain’s chances of seeing GDP growth in 2013 approach zero.

Paul Ausick