Spain's honeymoon with its new government is over.
Following months of hope that Spain will somehow tiptoe around the sensitive topic of austerity, despite promises of such and slow leaking of bond yields wider, yesterday the government promised to generate savings of €27 billion of about $36 billion (Spanish GDP is less than one tenth of America's, so an equivalent US cut would be about $400 billion), as demanded by Europe, but which will leave a harsh aftertaste with the general population. As Reuters notes: "The central government could meet its target but there's still a risk from the regions and the social security budget," economist at Madrid-based think tank Funcas Angel Laborda said. "I get the impression the central government has created a budget it can meet but has left everyone else in a rather difficult situation." Well, technically no. After all what Spain is doing is following the Greek playbook page by page, as expected back in October 2011 - first Spain sabotages its economy, then it demands more money, then it promises austerity, then it never keeps its promises but in the meantime, Germans are on the hook for hundreds of billions in more bailout cash. At the end of the day (for the euro), it will be they who are in the worst position, but since they get to retain their export partners (whose current account deficits the Bundesbank funds), all is well. That is, at least, until this latest unsustainable bubble pops.
Furthermore, as noted yesterday, it will be Spain's regions that are about to become front and center for the bond vigilantes:
The regional authorities, which account for around half
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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