Spain struggles as day of reckoning approaches – MoneyWeek

Thegovernmentnowexpectsthatthebudgetdeficit(theamountbywhichspendingexceedsincome)willbeover7%ofgrossdomesticproduct(GDP)thisyear。

TheInternationalMonetaryFund(IMF)thinksthatthingswon’timprovemuchin2013either。

Itpredictsthatthedeficitwillstillbe5。

7%ofGDPandthattotalgovernmentdebtwillbeover90%ofGDP。

Withdebtspiralling,itseemsonlyamatteroftimebeforeSpainaskstheEuropeanCentralBank(ECB)tobailitout。

PrimeMinisterMarianoRajoydoesn’twanttogodownthisroadyetasitwouldmeanlosingcontrolofSpain’spursestrings。

Buttogetthegovernment’sfinancesonasoundfootinghe’llhavetocutspendingonstatepensions,socialsecurityandgovernmentemployees’wages。

Withpeoplealreadyonthestreetscomplainingaboutcuts,politicsmeansthatthesetoughdecisionswillcontinuetobeputoff。

Sodon’tbesurprisedtoseeSpanishbondyieldsrisingagaininthenextfewweeks。

They’llprobablygodownoncetheECBstartsbuyingSpanishbonds,butallthatdoesisshifttheproblemelsewhere。

SpainfacessimilarproblemstoGreeceandIreland。

Itcan’tkeepspendingmorethanittakesin。

Untilitbalancesincomeandspending,its–andtheeurozone’s–problemswillnotgoaway。

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