Spain Deficit Shock.

[Beet]

(Dow Jones)--Spain surprised Monday with a higher-than-expected budget deficit for 2011, lending new urgency to the government's efforts to negotiate new budget targets with the European Union.

The Spanish budget ministry said Spain's total public-sector budget deficit stood at 8.51% of gross domestic product last year, far above the country's target of 6% and even the 8% estimate the new government of Prime Minister Mariano Rajoy gave in December.

According to the budget ministry, Spain's regions were responsible for the biggest portion of the 2011 overrun. They had a budget gap equal to 2.94% of GDP, compared to a target of 1.3%.

In highly decentralized Spain, the regions control over one third of spending, complicating the government's deficit-reduction push.

http://online.wsj.com/article/BT-CO-20120227-712531.html

Spain's unemployment rate is already 23%. Further massive austerity measures are not an option. At least the inflation rate (2% vs 2.7%) is slightly below the EU average now.

[Politico]

Don't worry! In the long-run, we're all dead...

[opebo]

Its funny - a country has a 23% unemployment rate and a deficit due to inadequate tax intake, and no one thinks to reflate the economy.  Instead they want more of what caused the problem in the first place - 'austerity'.

[© tweed]

Spanish bond yields actually down 1% today.

[Beet]

Bond yields are coming down as the ECB is finally providing the liquidity necessary to overcome the liquidity crunch, which would have sent the region into an ever-deepening tailspin. So their action was the right move, and how they managed to do it without direct bond purchases is particularly clever.

However, with Greek elections and possible default around the corner this may just be building the levees because you see the storm coming.

One is still confronted with the question of union or breakup of the euro. The reason why one of these paths needs to be chosen is so that long-term commitment to expansionary economic policies can be made, so that unemployment can be dealt with. 23% unemployment is unacceptable, and it is not politically sustainable. If breakup of the euro is the path to go along, then the Eurocrats must work towards thinking about how a country can leave the euro without setting off armageddon. If fiscal union is the goal (and I think this is what the European elites want to try for) then one must think on how to bring the message of European federalism from the current atmosphere to something that can actually gain a measure to popular support. One must think on how to strength and enhance the democratic institutions in Europe; the European parliament; and the possibility of a central European executive.

[batmacumba]

However, with Greek elections and possible default around the corner this may just be building the levees because you see the storm coming.

Yeah. When Mitterrand started his policies, he forgot about Germany...