Spain’s deficit-to-GDP ratio was 10.6% in 2012 and Greece’s 10.0%. These figures are so large that no other nation in the euro area approaches them. With unemployment at levels above 25% in Greece and Spain, and without any stimulus planned, neither can improve. In terms for their financial positions, each quickly will get much worse.
The overall state of the euro area’s deficit problem improved by one measure. Eurostat reports:
In the Euro area the government deficit to GDP ratio decreased from 4. 2 % in 2011 to 3.7 % in 2012, and in the EU27 from 4.4 % to 4.0%.
The fact that Germany showed a budget surplus (up 0.2%) last year helped the overall 2012 number.
The new data will ramp up the conversation triggered by the International Monetary Fund over the weekend. The agency released a policy statement that attacked proponents of strict austerity:
The risk of “adjustment fatigue” is increasing, especially in Europe, with growing tensions over the fairness of adjustment.
“Fatigue” is not a strong enough term, as Greece and Spain already have reached levels of economic depression that are beyond their own capacities to repair.
The nations expected to be in dire shape this year included Ireland, Italy and Portugal, among others. Some signs in the Eurostat report show their deficit problems eventually may be manageable, and certainly could be so with carefully applied aid. However, on the other side of the issue, the data demonstrate beyond reasonable debate that Spain and Greece are in a class of their own. None of the repair measures that have been contemplated in a meaningful way toward the rescue of Europe is wide enough or broad enough to address them.