Business, Finance & Economics

Spain's Rajoy confronts reality


A massive demonstration last week in Valencia Spain. It was in response to police violence against an earlier demonstration by students protesting austerity cuts to education, and youth unemployment.



Mariano Rajoy was sworn in as Spanish Prime Minister just before Christmas and pledged to meet EU imposed budget targets for 2012/13 of reducing his country's deficit to 4.4 percent of GDP this year from an estimated 6 percent in 2011/12

Then he saw the books.

Then the EU's economists forecast a recession throughout the euro zone including a prediction that Spain's economy would shrink by more than 1 percent in 2012.

So, as El Pais reports, Rajoy has begun to row back from this promise.

The truth is, as Ambrose Evans-Pritchard points out in The Daily Telegraph by quoting a Spanish member of the European Parlaiment, Josep Borrell, "To cut the deficit almost four points in one year would be a true depressionary shock for an anaemic economy,

With unemployment nosing towards 25 percent, Spaniards are becoming increasingly restless. Last autumn, I asked how, with so many unemployed, Spanish society remained so calm. Recent demonstrations in Valencia give a hint that the calmness may be giving way to something else.

In any case, Rajoy is not interested in pushing the envelope any farther. And my guess is that the EU will see things that way as well. Turning Spain into Greece is not in anyone's interest.

What this means for the fiscal compact due to be ratified this week at a Brussels summit- which commits euro zone members and other EU nations to annual budget deficits of 3.5 percent of GDP -  is not clear.