“The Spanish rebellion has begun,” says Ambrose Evans-Pritchard on Telegraph.co.uk. Spain recently recorded a budget deficit of 8.5% of GDP for 2011, worse than the 6% widely pencilled in. But Brussels has nonetheless been reluctant to revise the 4.4% of GDP budget deficit target it had laid out for Spain for this year. So at last weekend’s EU summit, Spain’s prime minister, Mariano Rajoy did so unilaterally.
The target will now be 5.8% of GDP. He noted too that this was a “sovereign decision”; he had not informed other leaders. This happened at a summit held to mark the signing of the EU’s new fiscal treaty enshrining tough new rules to prevent overspending states plunging the eurozone into a future crisis.
So much for the new fiscal deal, says Gavin Hewitt on BBC.co.uk. The “simple truth” is that while “governments can sign pacts… in the end they are elected to act in the best interests of their voters, rather than officials in Brussels”. National imperatives were always likely to undermine the fiscal treaty; they have just done so “before the ink has had a chance to dry”, as FxPro.com puts it.
The immediate issues, however, are the rapidly deteriorating Spanish economy and relationship between Germany and the south. Spain’s GDP is set to shrink by almost 2% this year and unemployment is at 23%. To cut the deficit by almost 4% of GDP in this context would amount to a “depressionary shock”, says Josep Borrell, former president of the European Parliament.
The eurozone is becoming “a cult whose members think the best way to survive is to chant hymns to austerity to the rhythm of a German tambourine”, says Pierre Briançon on Breakingviews. Insisting on tough targets is undermining growth, making them impossible to meet.
Praise for Rajoy in the Spanish press decries German interference in the economy, while the Germans fear the “Spanish are lying about the [2011] figures”, an official tells Economist.com.
As austerity deepens, other states may “baulk at meeting deficit targets set by Brussels”, says Hewitt. The risk of political conflict between Germany and Brussels on the one hand and the periphery on the other, derailing austerity programmes and causing defaults, is growing.