Mish's Global Economic Trend Analysis

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• Sharpen the Mower: Spain Needs Triple the Budget Cuts and Tax Hikes to Meet EMU Imposed Budget Targets
• Damn the Voters, Full Bailouts (and Existing Policies) Ahead
• Referendum on a Person or on a Treaty?

Sharpen the Mower: Spain Needs Triple the Budget Cuts and Tax Hikes to Meet EMU Imposed Budget Targets Posted: 28 Feb 2012 03:35 PM PST Conditions in Spain have deteriorated at a rapid pace. As little as a few months ago the Spanish economy was foolishly projected to grow at .7%. Now it expected to contract 1%. Likewise, Spain's budget deficit was supposed to shrink to 6% in 2011 and 4.4% in 2012. Instead it rose to 8.51 percent in 2011, up from a revised estimate of 8.2% which was up from a revised estimate of 6.5%. I think you can see a clear pattern here and as a result, the EU Commission Pressures Spain for Explanations. Spain must explain soon to the European Commission why its 2011 budget deficit was substantially higher than expected and deliver clear future budget plans, the Commission said on Tuesday. Spain's 2011 budget deficit came to 8.51 percent of GDP, the finance minister said on Monday, up from early estimates of 8.2 percent and far above forecasts from the Commission for something nearer 6.5 percent. "We need to understand the causes of this significant slippage," Commission spokesman Olivier Bailly told a regular briefing in Brussels. Spain will have to come up with more than 40 billion euros in savings to meet that target, implying spending cuts that most economists see as impossible given that the economy is already slipping into recession and the jobless rate is the highest in the European Union at 23 percent. Bailly said Spain also needed to deliver its 2012 budget estimates in the coming weeks, not at the end of March, saying the task in hand was so great it could not be delayed. Sharpen the Mower My friend Bran notes that Spain now needs to come up with another 30 billion Euros in budget cuts on top of the 15 billion promised. Moreover, those cuts need to be spread out over 9 months, not 12. This set of facts prompted the Spanish Gurus Blog to write Sharpen the mower. Spain's deficit exceeds 90 billion euros. Specifically, Spain's budget deficit is 91.3 billion euros, 8.51% of GDP. So it should not take a wizard to realize the simple mathematical fact that team Rajoy has not yet begun with budget cuts and tax increases, if by 2012 Spain is to meet the 4.4% of GDP deficit target set by creditors. The measures announced in December were only an appetizer. Instead of sharpening the blades, I think a good lawn mower would be more practical. The announced cuts and tax increases of last December (income tax, capital gains), are expected to generate about 14,900 million. To meet the objective of a 4.4% deficit, in 2012 the government deficit should not exceed 46,500 million euros. To do so requires a nearly 30 billion euros hole to be filled, with the aggravating circumstance that it's now March and those 30 billion euros need to come in the next 9 months. This figure is double the cuts and tax increases approved last December. So Rajoy has quite imagination if he expects this to happen. I modified that translation substantially, but I am pretty sure I have it accurate. Spain's unemployment is already 22.9%. What pray tell would another 30 billion in cuts or tax hikes do to that number? By the way, to go from 15 to 45 is tripling (not doubling) the tax hikes and cuts. Many structural reforms pertaining to jobs and work rules are quite necessary. The accompanying tax hikes are not and the Spanish economy is poised to implode as a result. Not to worry, EU commissioner Jean-Claude Juncker promises to "examine the situation with calm and serenity". Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Damn the Voters, Full Bailouts (and Existing Policies) Ahead Posted: 28 Feb 2012 10:48 AM PST What's "too complicated" for France is not "too complicated" for Ireland. The Financial Times reports Ireland calls vote on European treaty Dublin will hold a referendum on the eurozone fiscal treaty, plunging Europe into months of uncertainty and potentially placing a question mark over Ireland's future membership of the euro. Enda Kenny, Ireland's prime minister, said on Tuesday that the government had decided to hold a referendum following advice supplied by the attorney-general that "on balance" the Irish constitution required the treaty to be put to a vote. He said he would sign the treaty at a European Union summit on Friday and within a matter of weeks the government would organise a referendum commission – an independent body appointed to explain the subject matter of a referendum to the public. An opinion poll last month found 73 per cent of the public felt a vote should be held on the treaty, which would tighten budget rules for the 17 countries sharing the euro. Some 40 per cent of the 1,000 people questioned in the Sunday Business Post/Red C poll said they would support the treaty, 36 per cent were opposed and 24 per cent were undecided. The government's decision to hold a referendum follows a threat by the Sinn Féin party to challenge in the Supreme Court any decision not to give the public a say. Irish officials have privately acknowledged it would be more difficult to win a referendum if the government was seen to have been forced to hold a vote by the Irish courts. The Irish public have twice rejected EU treaties, only to approve them in second referendums. In 2008 the Lisbon treaty was rejected only to be approved in a second referendum held 18 months later. Logic of Signing a Treaty then Voting on It In the real world it makes no sense to sign a treaty then vote on it. In the political world it is a way of telling voters their wishes do not matter, that politicians will hold a referendum as many times as it takes to get a treaty signed. In a massive landslide, Irish voters swept out Ireland's previous prime minister, only to have Enda Kenny come along and do the exact same things as the politician he replaced. US Budgets and Bailouts That is exactly what happened in the US 2008 presidential elections as well. Obama carried out the same bailout policies and the same war mongering policies as Bush. There is plenty of rhetoric for change, just no real change that anyone can see. Both sides want to do something about the budget, neither side does. Obama wants to close corporate tax loopholes, then just a few days ago proposed a new set of loopholes for manufacturing, just as Santorum and Romney have proposed. The net result would be an increase in the budget deficit. There are differences between the parties on social issues, but nothing happens there but hot air. Romney vs. Obama What's the Difference? Not your grandfather's Republican Party; President Obama and Mitt Romney are Nearly One and the Same! Obama Seeks to Prove He is More Like Romney; Obama vs. Romney - What's the Difference? Germany Bailouts Voter sentiment in Germany is overwhelmingly against giving more money to Greece. So why did Chancellor Angela Merkel ram through more aid for Greece? The answer as explained many times is all Merkel cares about is her legacy, and that legacy says no country can leave the eurozone. Merkel does not give a damn about what is good for Greece, or what her own constituents want either. French Promises French President Nicolas Sarkozy will not hold a referendum claiming it's "too complicated". In reality, Sarkozy knows the referendum would be about him (See Referendum on a Person or on a Treaty?). Everywhere you look, it's a case of "Damn the Voters, Full Bailouts (and Existing Policies) Ahead". Politicians have decided, things are "too complicated to change". Expect a cornucopia of promises from politicians, just don't expect any real change. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Referendum on a Person or on a Treaty? Posted: 28 Feb 2012 09:49 AM PST Reader Andrea from Italy, but who now lives in France adds some insight into Sarkozy's "Treaty Too Complicated For A Vote" excuse. Andrea writes ... Hi Mish, I can add some more info. Sarkozy started his presidential campaign pledging to be the "president of the people" and saying he wants to give to the people the power to decide about some issues: particularly he said he is going to propose a referendum about a couple of issues, immigration laws and unemployement benefits. As you can easily imagine, these are "minor" subjects for a referendum, normally dealt by executive power. So, it is very contradictory that he does not want a referendum about the European Treaty, even more in the light of the fact that in recent years France held two referendums about Europe: one about Euro introduction and another about approval of the European treaty signed in 2006 (possibly as complicated as this one). Clearly he knows the topic is a referendum on his own policies and he wants to avoid this. Regards, Andrea On second thought, the treaty is too complicated (for his own personal good), not too complicated for the good of France. President of the people? Is there a president (leader) of the people anywhere? Certainly not Germany, Ireland, Greece, Italy, the United States, Australia, Canada, or anywhere else. I am tired of the endless brutal lies from politicians everywhere. Unfortunately, such lies on both sides of the Atlantic are going to get much worse. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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